Mr Clarke wants to 'narrow the class divide'

The situation for many in higher education was "very tight", he told the Commons Education Select Committee.

Students can currently apply for a loan worth up to �3,950 a year outside London and from next year will be entitled to means-tested grants worth up to �1,000.

Mr Clarke said: "I would hope we end up in a position where everybody can get enough money on which to live. That's the way it should be."

'Not a mortgage'

The argument that fear of debt put some people off going to university had "some substance".

The government's decision not to increase the interest rate on student loans - repayments only rise in line with inflation at the moment - meant that student loan debt was "not seen as a Barclaycard loan or a mortgage or whatever, Mr Clarke added.

He also dismissed the fear that all universities in England would increase annual tuition fees to the �3,000 maximum as soon as they were allowed to do so in 2006.

However, Mr Clarke disclosed that English members of the Russell Group of elite universities, which includes Oxford, Cambridge, Bristol, Manchester and Imperial College in London, wanted to be allowed to charge at least �4,000 a year.

Proposals for how the "access regulator" - the university applications watchdog - would work would be published within the next two or three weeks.

'Different needs'

The regulator would have the power to refuse permission to charge higher fees if he or she felt universities were not doing enough to attract students from all walks of life.

Some, particularly in the private school sector, are worried the regulator will be a form of positive discrimination against their pupils.

Bristol University is being boycotted by public school head teachers who claim it discriminates against their pupils in favour of others from poorly performing comprehensives.

Mr Clarke declared: "I do have an ambition to narrow the class divide."

But he stressed he did not believe the best way of doing that was for the government to set targets for individual universities on the number of people from different social classes that they should take.

"I think the best way to do it is to make sure the system responds to different needs."

Shadow education secretary Damian Green said: "Charles Clarke seems to have failed to notice the effect on potential students of the higher debt levels they would face under his proposals.

"Whether or not every university charges the full �3,000 fee, students from poorer families may well be deterred from applying.

"The larger the gap between the fees charged by different universities, the more likely that disadvantaged students will not aim for the best.