The 'degrees-for-sale' scandal stretches from the most prestigious institutions to the former polytechnics and includes undergraduate and postgraduate degrees, foreign and home students. In the most extreme case, The Observer has evidence of a professor ordering staff to mark up students at risk of failing in order to keep the money coming in.

Lecturers at institutions across the country, including Oxford, London and Swansea, told The Observer the scandal is undermining academic standards, but they cannot speak publicly for fear of losing their jobs.

In the most blatant example of the financial pressure to pass failing students, Professor Richard Wynne, head of Bournemouth University's design, engineering and computing department, emailed staff telling them to 'minimise' the number of failures because of a drop in applications.

He wrote: 'I would urge all academic staff involved in marking examinations etc to look very carefully at those students gaining marks in the 30s. If the mark is 38/9 [just below the pass mark] then please, where possible, look for the extra 1/2 marks if appropriate and not leave it to the exam board to make this decision.'

Wynne went on to warn staff of the consequences of failing students. 'I often reduce the problem to one of money. It perhaps brings home the issue at hand when you consider that each student brings an income of approximately £4,500. You can all do the sums as well as me to work out the likely implications for the school.'

One lecturer at Bournemouth said: 'Science graduates who cannot do what their certificate implies are potentially dangerous.'

Bournemouth University has given Wynne its full backing, claiming that his email simply urges a closer scrutiny of borderline students. 'In fact, he does not ask for a lowering of academic standards. Instead, he advocates - even advises - that colleagues make a learned consideration of each student on merit.'

The Observer investigation has also revealed that university staff are being put under increasing pressure to pass foreign students studying for masters' degrees because the income is keeping many universities afloat.

Since the mid-1990s, the number of foreign graduates coming to Britain has risen from nearly 7,000 to more then 33,000. The income from non-EU foreign students is estimated at £600 million.

The government has introduced a £3,000 top-up fee, which students will pay from 2006, but this alone will not close the estimated £10 billion higher-education funding gap. Many universities now believe that income from foreign students is the only solution, and some have decided to cut courses as a result.

At the top end of the range, foreign students can pay £30,000 a year to study for a business degree - six times the income received from a UK undergraduate. Even masters' degrees in traditional academic subjects can cost as much as £7,000 for foreign students. Universities make a loss of a bout £5,000 on each UK student.

Colwyn Williamson of the Council for Academic Freedom and Academic Standards (Cafas), who teaches at Swansea University, said a blind eye was turned to practices ranging from direct plagiarism to lecturers doing their students' work for them, or simply passing work that had not been examined properly.

At Swansea, the government's University Visitor, Phillip Havers QC, is conducting an investigation into why the vice-chancellor had ordered the closure of five traditional departments - chemistry, anthropology, sociology, philosophy and development studies.

Staff believe the decision has been made to boost the numbers of foreign students coming to study at the university's new management school on lucrative masters' degrees, in particular what vice-chancellor Professor Richard B Davies has called 'the largely untapped markets in the Far East'.

Cafas has produced a petition to the University Visitor, which argues that the vice-chancellor has betrayed the mission of his post. 'The university's charter says it has three roles: to teach, to conduct research and to disseminate knowledge in the region. This has been interpreted as recruiting foreign students in the Far East.'

In a statement, Davies said: 'To compete in the world you have to have high standards. The academic restructuring at Swansea is about raising standards even further. There is no future for a university that dumbs down for short-term gain.'

The full scale of the problem is unknown, but it is thought to endemic and Swansea is just the visible tip of the iceberg. Even some Oxford colleges have become so desperate for funds that they have climbed aboard the graduate-student bandwagon. One literature don told The Observer it was 'nigh on impossible to fail a master's degree, regardless of the quality of the student'.

He said: 'Hard-working academics who have always endeavoured to maintain the highest standards find themselves cornered into accepting this situation because of the desperate financial straits that even the best British universities find themselves in.'

He also said that staff believed they were expected to give good grades to American students studying in England for credits for their courses back home.

This impression has been passed to the students themselves. Gilbert Cervelli, an American theology and history student who spent six months at Oxford this year for a credit towards his American Bachelor of Arts degree said he received all A grades. 'For a majority of my time at Oxford, I wondered if I could write an absolute crap essay and still have my tutor tell me it wonderful just because I was a huge investment. To think that the only reason I was admitted to Oxford University was because I had money and came from America is a rather cynical view, one that I hope is not true.'

A statement by Oxford University said: 'The university sets great importance on both the rigour and fairness of its examination procedures. Candidates are examined anonymously, with numbers rather than names or other identifying details on exam papers. Papers are blind double-marked, with external examiners carrying out random quality control checks and adjudicating in borderline cases or where there are discrepancies in the double marking.'

A senior lecturer in a literature department at London University said: 'Everyone in the humanities feels the pressure to bring in extra funding. The only way you can do it is to recruit graduate students. There are very deep-rooted financial problems in British universities, but there is also a deep-rooted doubt socially about what education is for.'

This view was supported by a politics lecturer at a northern university: 'There is no doubt that a good honours degree from a good university is of a far higher standard than a master's from those same institutions. It is very rare for anyone to fail. This only happens with incontrovertible evidence of plagiarism.'