By Katherine Sellgren
BBC News education reporter
Lord Mandelson hinted at an increase in tuition fees
Lord Mandelson says he expects students to adopt a more consumer-led approach to their university education.
Speaking at a CBI higher education summit in London, Lord Mandelson said students should be encouraged to be more "picky, choosy and demanding".
The business secretary said government and industry must scrutinise and monitor courses on behalf of students.
The government is about to begin a review of how students pay for university in England.
Lord Mandelson told the CBI summit there needed to be "a greater degree of competition between institutions" so that courses would be improved and tailored.
He said while the higher and further education sectors faced "increasingly tight fiscal constraint", standards should not fall.
He said: "Expanding investment means universities will have to deepen and diversify their sources of non-public income through commercialisation of their teaching or research expertise, through a more professional approach to endowments and through greater resource efficiency.
"We will also have to look at the contribution that individuals make to the cost of higher education, which we will do through the independent fees review."
The review is due to be launched later this year, but will not conclude until after the next general election.
Students 'expect more'
Responding to a question from a delegate on student choice, Lord Mandelson said: "It's a change in culture and attitude that we want to encourage.
"As students who go into higher education pay more, they will expect more and are entitled to receive more in terms, not just of the range of courses, but in the quality of experience they receive during their time in the higher education system.
"If there is a degree of passivity then, I hope, that without rejoining our student population to take to the barricades, that they become pickier, choosier and more demanding consumers of the higher education experience.
"Therefore teacher quality and the quality of the teaching experience is going to become more important."
Lord Mandelson said ministers and industry would need to be more demanding in what they expected from universities and colleges.
"If there are people, or approaches or systems that are failing then we have got to be prepared to call time on those people or those systems or those approaches.
"That's not painless, but then never is it meant to be painless. It's meant to bring about those sorts of changes which people are going to rightly demand."
Lord Mandelson rejected the CBI's call to scrap the aim of sending 50% of young people to university.
"There is no silver bullet on social mobility, but education and higher skills are as close as you get to one," he said.
'Mickey Mouse' courses
Adding the Conservatives' voice to the CBI's higher education summit, shadow universities minister David Willetts said many young people now aspired to a university education.
"It is a route to adulthood for many people, even a route into the middle class."
Mr Willetts went on to condemn those who criticised vocational courses.
"People complain about Mickey Mouse courses without always explaining what they mean.
"Often, it is used to refer to vocational courses - presumably on the grounds that these are not for university and are what the old polytechnics were for."
He said he had read about courses in brewing and distilling, computer game design and golf course management and found them to be valuable.
"In reality, when employers are involved and a trade or professional body is certifying a course, then this is one of the best guarantees of more vigour."