An "Ivy League" of drama and dance schools that will be given the same sort of government funding as universities is to be established to encourage talented young people to train for the stage and screen.
A national drama and dance "degree" is also being devised so that resting actors and retired dancers can use the qualification later in life.
The Government is concerned that talented ethnic minority performers and those from low-income families are turning down places because they cannot afford the pounds 21,000 three-year fees. It fears that Britain's world- renowned "Fame" schools will have to close because they have no money.
Ministers want to differentiate between cowboy colleges with no links to the West End, and elite drama academies, including Rada (Royal Academy of Dramatic Art), and Lamda (London Academy of Music and Dramatic Arts), which produced performers such as Donald Sutherland, Lesley Joseph and Timothy West.
Many drama and dance students do not qualify for government funding to pay for their education. They have been relying on short-term lottery funding through the Arts Council, and awards from sympathetic local education authorities.
"We try to train the best students who come up," said Timothy West, who, with his wife, Prunella Scales, is campaigning for more help for the students. "At the moment they have no help with tuition fees and their maintenance and there is considerable hardship. They have trouble living, eating and travelling. I don't know how they stay on the right side of the law."
Ministers are also examining ways to give drama and dance students access to student loans and grants like those for students attending universities. Most drama students have to work part-time or send off begging letters to raise money to pay for flats and food. Only a handful of local education authorities award grants for drama.
"We are all very proud when our actors win Oscars and awards, but there isn't the funding for them to get the kind of training they need," said Elise Warriner, a second-year stage management student.
"I had to write 600 letters asking actors for support. It's incredibly hard work trying to put the money together. Most people are working in shoe shops and pubs and stacking supermarket shelves on top of a 50-hour week. Lots of people with places just give up."
As part of its planned shake-up of the way British "Fame" schools are funded, the Government is expected to announce a new independent board to assess the leading drama schools next month.
The assessors will be experienced directors, dancers, stage managers and actors who will see whether the courses have real relevance to the industry and will help students to get jobs. Teachers with no recent directing or performing experience will be encouraged to tread the boards to gain fresh insight into the profession.
Next week the Arts Council will release a report on the state of dance and drama training in Britain. It will conclude that there should be reforms in the way the schools are supported. Research shows the crisis in funding prevents talented ethnic minority and poorer students from attending drama schools and limited places are going to students who can afford to support themselves.
There are 4,360 dance, drama and stage management students in Britain on courses approved by the National Council For Drama Training and the National Council for Dance Training, the two bodies which currently assess schools. The Councils are in talks with the Government about how a new national assessment scheme administered by them and linked to funding will work. There is likely to be a cap on the number of places funded.
Drama and dance schools fear that tough new criteria may mean they could lose their independence or be subjected to endless government inspections in return for the extra cash.
"I can't imagine anything being worse than the status quo," said Peter James, principal of Lamda. "At the moment getting tuition money depends on where you live. You can't become a stage manager in Surrey.
"We do have anxieties. We don't want to lose our independence. The one thing we don't know is how much money is going to be given."
They also fear a cap on the size of the government grants which will force them to take in more fee-paying foreign students.
Dr Marion North, director of the Laban Centre for Music and Dance, said: "Students are having a difficult time. We are talking about choreographers, ballet dancers and contemporary dance students. These are talented students who go straight into the West End. All the British students are disadvantaged - they are struggling."Reuse content