The federal government has been offered a way forward to get its controversial university changes through the Senate.
Independent senator Nick Xenophon, who voted against the government's higher education laws in December, has written to Education Minister Christopher Pyne calling for an independent inquiry into the sector, a suggestion which has gained the support of some crossbenchers.
"The review should look at where we are, where we want to go and how best to get there, both in a local and global context," Senator Xenophon wrote.
In the interim, universities would be allowed to increase their fees to a cap, which would be determined by the review panel by mid-2015.
The capped fee rise would allow universities to recoup government funding cuts.
The independent panel should be selected after consultation with the Labor opposition and crossbenchers.
Fellow independent senator Jacqui Lambie, who with Senator Xenophon voted to defeat the bill in December, said she agreed with an inquiry but not the interim fee hike.
Australian Motoring Enthusiast Party senator Ricky Muir, who voted for the bill, said on Tuesday he also supported the inquiry.
Having listened to the concerns of students over the summer break, Senator Muir said he now could not vote for a bill that made university courses inaccessible or left students with burdensome debts.
Senator Lambie said she would not support passing any legislation before the 2016 election.
"Any proposed changes must be taken to the Australian and Tasmanian people at the next federal election," she said.
A spokesman for Mr Pyne said the minister welcomed Senator Xenophon's constructive approach.
"We sincerely hope that Labor listens carefully to Senator Xenophon's call for a bipartisan approach to the issue of resolving a sustainable university funding system," the spokesman told AAP.
Labor deputy leader Tanya Plibersek said the idea that cutting university funding by 20 per cent would improve the system was a "complete furphy".
Greens leader Christine Milne told reporters in Hobart the prime minister should dump the universities policy, just as he did with changes to Medicare.
The government needs six extra votes in the Senate to pass its revised legislation, which is expected to be debated when parliament returns on February 9. But this could be delayed if the inquiry goes ahead.
The previous bill was backed by Senator Muir and fellow crossbenchers Bob Day, David Leyonhjelm and John Madigan.
Palmer United Party senator Dio Wang, who previously voted against the laws, told The Australian on Saturday he believed that in the absence of an extra $7 billion in public funding, fee deregulation "is part of the solution".
However he would support the collective decision of his party.
The revised bill keeps the interest rate for student loans at the CPI, bolsters regional scholarships and brings in the consumer watchdog to monitor fee hikes, among other changes.
Universities Australia deputy chief Anne-Marie Lansdown said there had already been at least four major reviews of the sector in recent years.
"Universities have been faced with the challenge of under-investment by governments at the very time the sector requires funding certainty to properly plan the delivery of a high quality education and research system for students," she said.
"With public finances likely to continue to be constrained ... the sector has come to a consensus position in favour of deregulation of university fees with certain conditions."
These conditions include reducing the cut in per student funding, an expert panel to review fee increases and larger structural adjustment.
Ms Lansdown said Universities Australia would continue to talk to crossbench senators and the government.
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