Universities will also be given more incentive to promote exchange, with the Higher Education Funding Council for England (HEFCE) compensating them with a grant of up to £3,600 per student for lost income (compared to a maximum £1,687 currently).

Around 400,000 overseas students come to Britain each year but only 30,000 British study abroad

HEFCE’s grants will also apply to all student exchanges for the first time from 2014. At present they only reimburse the cost of exchanges through the Erasmus scheme.

David Willetts, the universities minister, told The Times: “I would like to see an expansion in the number of people doing this, especially in a three-year course for non modern language courses.”

He added: “Ultimately individual students must choose whether or not they want to study abroad but clearly it does broaden their horizons if they have the opportunity.”

Around 400,000 overseas students come to Britain each year but only 30,000 British study abroad, or less than 2%, with cost cited as a barrier. With the new discount being touted, a typical student loan for tuition fees on graduation would be £19,360 rather than £27,000, according to sources.

The report also proposes the development of a national strategy for mobility

The move follows a report into mobility by Professor Colin Riordan, chair of the UK HE International Unit, which was commissioned by David Willetts. The report also proposes the development of a national strategy for mobility and sector-led body to support this; making it easier for students to spend time abroad via shorter placements; and better recognition of foreign credits so that time abroad counts towards a British degree.

O’Riordan said: “At a time when it is more important than ever for the UK to be competitive internationally, we look forward to working with the government to help increase the number of students deciding to study abroad.”