Creating new institutions that teach degrees assessed by exams that are set and marked by "prestigious" universities risks making students victims of "a false deal", vice-chancellors have warned.

The idea has been put forward by David Willetts, the universities minister, and was set to get backing from Vince Cable, the business secretary, in a speech this week.

Speaking last month, Mr Willetts said that if local providers opted to teach existing highly regarded degrees, this could improve students' employability.

He referred to the University of London's External System, the world's oldest provider of degrees through distance and flexible learning, which receives no public funding. If this model was encouraged in the UK, it could result in the emergence of new private providers.

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However, vice-chancellors have raised concerns about the idea.

The head of a pre-1992 university said it would be "extraordinary" to suggest that employers "would not differentiate between an Oxford degree from Oxford and an (externally set) Oxford degree from somewhere else". "I would be really surprised if external degrees had the same cachet as degrees in-house," she said.

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"Some of the validation and franchising arrangements that are already in place in the sector are excellent. Why not look at the strengths of the existing system rather than attempt to reinvent it with something from a different era?" she asked.

Others argued that the educational experience would not be as good. Les Ebdon, vice-chancellor of the University of Bedfordshire, said it would mean a more "didactic" approach to learning, while another vice-chancellor said it would be heading in the direction of a national university syllabus.

But a fourth vice-chancellor argued that the "basic logic" of Mr Willetts' idea was "hard to deny", and could be a mechanism for widening participation.

However, he said that "we shouldn't imagine that this is 'the same thing only cheaper'". Private providers would only offer subjects that were less expensive to teach, he added.

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Roger Brown, who headed the former ³ÉÈËVRÊÓƵ Quality Council, said that separating the delivery of degrees from the award could raise quality control issues.

There are 44,000 students studying through the University of London's External System abroad, and about 6,000 in the UK.

Students on the LLB pay the University of London between ?2,330 and ?3,765 for the course, which includes study materials and exam papers marked by university staff.

A number of private providers in the UK offer teaching support for the External System degrees. A year of tuition from the Kensington College of Business costs ?3,000.

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Jonathan Kydd, dean of the External System, said it had a 152-year track record and that its degrees were "valued for their academic rigour across the world".

"If the government were to make loans available to our students on the same terms as to students on full-time courses at universities, there is no reason why we could not play a key role in expanding provision in the UK," he said.

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rebecca.attwood@tsleducation.com.