A university-funding system started by the previous Labor government has overseen a high attrition rate among some of the students it hoped to help.
The demand-driven system, introduced in 2012, removed caps and saw the government pay for as many domestic undergraduate students as universities wished to enrol.
But bachelor-degree students with a tertiary admission score of less than 50 - who would likely have missed a place under the old system - continue to drop out at a high rate.
The key finding comes from a review into the funding scheme ordered by the coalition.
While returning some positive outcomes, there is a need for the scheme to change and include diploma-level and bridging courses, co-reviewer Andrew Norton said on Sunday.
"The previous government decided to exclude all the sub-bachelor courses in its model and this is what we would like to see changed," Mr Norton told AAP.
Students who undertake pathway courses before attending university have a better success rate once they reach university, he said.
Often such programs are offered by private institutions and TAFE colleges which are currently excluded from the funding model but should be brought into the fold, Mr Norton added.
Reviewers agreed the demand-driven model is working well overall and has boosted enrolments among the financially disadvantaged, along with rural and indigenous students.
When places were capped, tens of thousands of eligible students were denied university educations.
Education Minister Christopher Pyne said the government will consider the review's 19 findings and 17 recommendations and comment at a later time.
TAFE Directors Australia urged the government to do so quickly ahead of the May federal budget and include TAFE and private institutions in demand-driven funding and end the discriminatory model which favours universities.
Universities Australia, which made a submission to the review, welcomed the outcome, adding that early indications show the demand-driven model is helping address skills shortages and lift productivity.
Labor education spokesman Kim Carr is concerned about public money going to private providers and also wants to know where the funding would come from for an expansion of the demand-driven model.
"We are witnessing a softening-up process, a precursor to what we anticipate will be significant changes to deregulation," Senator Carr said.
He forecasts the wholesale privatisation of Australia's higher education system, where students end up paying more.
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