HEPI says fees of £9,000 from 2012 will lead to a polarized sector, where only a few universities will find such fees viable and others will charge £7,500, writes Katherine Sellgren at the BBC. It says letting universities recruit unlimited AAB+ grade students will set up an "arms race" for the privileged.
The White paper for higher education, published in June, raised the tuition fee cap for English universities from just over £3,000 to £9,000 from autumn 2012.
In its assessment of the long-term impact of the White Paper, HEPI says plans to reduce student number allocations for universities charging more than £6,000, but allow them to take unlimited numbers of top AAB+ students, could bring "unwelcome" consequences for the government, universities, and students.
The report says:
"Most universities will be obliged if not immediately then within a year or two, to reduce their net fees to £7,500. They will become unviable very quickly otherwise, losing 8% or more of their students every year."
Under the new regime, students who have their permanent home in England will have to pay the full tuition fees.
Scottish students studying in Scotland will pay no fees in 2012, Welsh students will be partly subsidized. Northern Ireland's ministers have said tuition fees in 2012 are likely to remain similar to those in 2011, though details are yet to be finalized, and this is likely only to apply to Northern Irish students studying in Northern Ireland.
Professor Teresa Rees said there should be a strategic decision on fees charged and bursaries available for all students.
Ministers expected the £9,000-a-year fee to be the exception, anticipating most to charge around £7,500, but the majority of universities in England and Wales have outlined their plans to charge the top fee.
The HEPI report predicts a "significant shortfall" in the government's budget, saying ministers have been optimistic in their calculation of the Resource Accounting and Budgeting (RAB) charge – the taxpayers' subsidy for student loans.
It suggests the costs could be between £190m and £490m a year more than estimated.
"If the government is obliged to revise upwards the cost of the new arrangements then it will have to make reductions in other parts of the higher education budget, or it could lead to further reductions in student numbers and therefore opportunities for those leaving school," HEPI says.
The HEPI study warns that social mobility will be an "unintended victim" of the new arrangements, as students from disadvantaged backgrounds will be less likely to attend the most selective universities.
"To the extent that the government succeeds in its aim of increasing the number of places in the cheaper further education colleges at the expense of traditional universities, disadvantaged students will be more likely to attend these, along with the cheaper universities, where they will have fewer resources devoted to them and which provide less kudos and fewer advantages on graduation," it says.
HEPI says competition to recruit students with AAB+ grades means universities will provide financial incentives to attract and retain these individuals.
"They will have to, because if they do not, and their competitors do, then they will lose them."
HEPI predicts that scholarships at such universities will be "needs blind".
"Because school achievement and economic privilege are closely related, these scholarships will effectively provide financial support for better off students."
HEPI director Bahram Bekhradnia said, in the past, top universities had often accepted students who did not have top grades, but showed promising potential.
He warned these institutions may be less inclined to do so if their numbers of non-high achievers were limited, meaning fewer opportunities for disadvantaged students.
The Department for Business, Innovation and Skills (BIS) said HEPI's assumptions about the future behavior of students and institutions did not match their own.
Universities Minister David Willetts said:
"The intent of our higher education reforms are clear – we are putting students at the heart of the system with a financing system that is fairer and affordable for the nation. While we expect universities to offer good value for money, students will have the information to decide what course and institution is right for them."
"Institutions will have to work much harder to attract students and be explicit about the quality of their teaching and the type of experience they offer."