The Government has been advised by the Higher Education Authority (HEA) to bring in legislation to enable some universities to leave the State sector and become private institutions.
The HEA, which advises the Minister for Education, Mr Dempsey, on higher education, said if Ireland wanted to compete on the world stage it needed to offer colleges an opportunity to operate privately, like US institutions such as Harvard and Yale.
The submission does not refer to individual colleges, but it is understood that larger institutions such as University College Dublin, Trinity College Dublin and University College Cork would be the most likely to avail of the opportunity in the years ahead.
The HEA made the recommendation in a submission passed to the Minister and the Organisation for Economic Co-operation and Development. The Paris-based organisation is reviewing the third-level sector for Mr Dempsey.
If the Government accepts the recommendation, it would represent one of the biggest shake-ups of higher education in decades.
The HEA said these would be not-for-profit institutions which would focus solely on higher education, research and development and service to the community.
If privatised, they would provide services to the State on a contract basis "along the lines of some of the leading research-based universities in the US and elsewhere".
The HEA's chairman, Dr Don Thornhill, told The Irish Times: "We see that some institutions should be encouraged to set the goal of becoming private but not- for-profit institutions along the lines of leading research-based institutions in the US such as Harvard, Yale and Cornell.
"Institutions should have the possibility of going down this road. It would be a long evolving process.
"But for institutions that complain about being in State control here is a chance for them to take up the challenge."
He said that of the top 20 third-level colleges in the US almost none were public institutions.
"In relation to higher education in Ireland, we have got to position ourselves on the world stage. It is not just about catching up, but also about getting ahead and staying ahead."
The submission said a high-level international panel would have to examine any proposals to go private. In this review the college's financial position, its governance and its management structures would have to be studied.
With third-level institutions currently receiving about 80 per cent of their funds from the State, there would continue to be a high dependence on Government funding.
However, the privately-owned colleges would apply for this funding on a competitive basis and would be given a contract by the State to run certain courses and to undertake research.
Such a competitive element should increase the quality of the outcomes, stressed the HEA, and this would greatly benefit the national economy.
The HEA submission explained the rationale for the recommendation. "For some institutions the move to this new status will significantly enhance their flexibility and capacity in carrying out their core functions of teaching, research and service to the community."
It said the new status would allow colleges to build greater links with industry and develop new specialisations in teaching and learning.
Under a private arrangement, colleges would also have more flexibility on pay scales, with top-level research attracting higher salaries than currently apply.
The submission contains a range of radical recommendations, including more autonomy for colleges and the setting up of a new body within the HEA to allocate resources.
The three to four members of this group would not be drawn from the colleges themselves.
The HEA also returned to the controversial area of fees and suggested that "active consideration should continue to be given to the individual's contribution to the cost of his or her higher education".
The submission said fees, student loans or a graduate tax should be introduced only on a "carefully planned basis".
It also said there needed to be increased investment in research and development, and that a Cabinet committee should be set up to oversee a new "Knowledge Ireland" statutory fund for basic research funding.
The money would come through organisations such as Science Foundation Ireland, the HEA itself, Enterprise Ireland and the Health Research Board.