By Mike Baker BBC education correspondent

Two worrying features emerged from this week's publication of the government's Higher Education Bill.

The first is highlighted by the fact that student grants are now back in favour. Remember grants were scrapped in 1998, in direct opposition to the recommendations of the independent Dearing Review.

If grants are right now, why were they rejected so hurriedly by the newly elected Labour government?

The second concern is that there appears to be no Plan B if the current precarious compromise is brought crashing down by rebel Labour MPs.

Let's deal with grants first. Lord Dearing's review, set up with all-party support before the 1997 general election, recommended that all students should pay a fee of �1,000 a year but that grants should be retained.

Hindsight

However, the then Education Secretary, David Blunkett, scrapped grants altogether in favour of higher student loans.

The thinking then was that help for poorer students would come, not through grants for living costs, but through a rebate in fees, with students from the poorest 30-40% of homes paying nothing.

This undermined the principle that graduates benefit from their education and so should all contribute something towards the cost of the teaching they receive.

Hindsight, of course, produces wonderful vision. But the decision to ignore a key part of Dearing's recommendation was taken in a rush and, I suspect, regretted at leisure.

By contrast, the current reform package has been ground out slowly and with much discussion and disagreement.

Student living costs are sometimes too high

One key concession made to Labour rebels this week was the agreement to bring back means-tested student grants worth �1,500 a year to the roughly 30% of students whose parental income is below �15,000 a year.

The government has indicated it wishes to go even further down the road of restoring grants. If "practical problems" can be overcome, ministers want to convert the current fee rebate (worth �1,200 to the poorest students) into additional grant.

This would make the total grant worth �2,700 a year. That is a big increase on the �1,000 a year grant set out in the government's white paper a year ago.

It is also a complete reversal of Labour's position of five years ago.

For a student from a poorer background, getting �2,700 a year while they are studying is a lot more generous than giving them a �1,500 grant now and a rebate of �1,200 from a debt that will not become due until some years after graduation.

Food and rent

It also recognises a reality that tends to be forgotten in the current focus on top-up fees: the biggest cause of student debt is not tuition fees but living costs.

Even with a maximum variable fee of �3,000, the cost of students' rent, heating, food, travel, books etc. will be considerably higher than the fee.

Surely the biggest deterrent effect for students, and a major cause of drop-out, is the penury and the debt they will build up while at university, not the prospect of a fee-repayment scheme which only starts after they have graduated and are earning at least �15,000 a year?

Of course, there is one big problem for the government in this: the return of means-tested grants runs completely counter to their principle that 18 year olds should be regarded as adults, quite independent of their parents.

Why has the government changed its mind on grants?

It was this principle, in part, which led David Blunkett to prefer loans over means-tested grant, although this would have been more convincing if the loans had not had a means-tested element too.

In a further refinement, the current Education Secretary, Charles Clarke, has said he would like to increase the level of the loan and remove means-testing.

He says this is in line with the principle that students of 18-plus should not be assessed on their parents' income. He didn't like to mention that the new grants will, of course, be based on exactly that.

But the current package is full of contradictions and anomalies and, perhaps, that is inevitable when it is the product of so much bargaining and the balancing of competing interests.

The fee rebate is certainly anomalous. Take this example. A graduate from a poor home and a graduate from a wealthy home leave the same university at the same time having studied the same subject at a cost of �3,000 a year.

Messy package

The graduate from the poor home becomes a City banker while the graduate from the middle-class home becomes a charity worker.

The former earns �100,000 a year but only has to re-pay tuition costs of �5,400 while the latter earns only �20,000 but must repay �9,000.

This is now a rather messy package of reforms, reflecting the attempts to appease several different interest groups. But that is how democracy works.

Of course, democracy could also see the whole lot rejected when the House of Commons votes at the end of the month.

Charles Clarke has said there will be no more concessions and that this is not a "pick and mix" offer: you take or leave it all.

Tories and Lib Dems

So where is the Plan B? If these reforms are rejected, the problems of university under-funding will not simply go away.

Nor will there be any solution to the aim of widening access to university for students from a more representative spread of backgrounds.

Apart from the idea of a graduate tax (a system untried anywhere in the world), there seem to be few other solutions waiting in the wings.

The Conservatives offer one option: scrapping fees completely and capping the numbers going to university. The Liberal Democrats offer another: raising income tax to meet the university funding gap.

Both are workable options but neither is likely to get the support of the full House of Commons.

So, if the government's plan also fails to win the support of the House of Commons, there will be nothing to fall back on.

This lack of a Plan B makes the stakes in the forthcoming parliamentary vote very high indeed.