The university said funds raised would be used for building projects.

A trend for issuing bonds has already been set in the United States, where Ivy League universities use the money markets to raise cash.

A bond is a certificate of debt where issuers guarantee to pay the lender the sum back, plus interest, by a specific date in the future.

The proposal to raise money from bonds follows warnings of a tough financial climate for universities.

Building plans

In a statement, Cambridge University said the funding was needed for two projects – a development of staff and students accommodation in north-west Cambridge and the redevelopment of two city centre sites, New Museum and the Old Press.

The statement said the university had been “reviewing means of financing the developments”.

“Cash flows from its regular operations will be insufficient for such major expenditure and external financing will be required,” it said.

“The university is now considering raising significant sums of long-term (30-50 year) funds via the fixed interest markets, taking advantage of current market conditions.

“Bank financing, private placement or public bond issue are possible routes. An indicative range is £200-300 million.

“The university anticipates finalising, and perhaps implementing, its approach in the course of 2010.”

This will not be the first time a UK university has tried to raise funds this way – Lancaster University launched a scheme in 1995 to support investments in its campus.

Cuts in higher education

The planned move by Cambridge comes as universities in England face a tough future financially.

In December, it was announced universities would have to absorb spending cuts of £398m for the year 2010-11.

In his annual grant letter to the Higher Education Funding Council for England in December, Business Secretary Lord Mandelson confirmed efficiency savings of £180m and £83m – and made a further £135m budget reduction.

Lord Mandleson said the cuts were needed to pay for the “higher than expected” costs of funding grants record numbers of students taking up places during the recession.

Critics fear the severity of the cuts could push some universities to take on larger commercial and financial risks.