Universities warn they will suffer "severe" financial strain and will find it hard to deliver a high standard of education after the federal government said it would strip $2.3 billion from the tertiary education sector.
Tertiary Education Minister Craig Emerson, who made the announcement in Canberra on Saturday, said Labor had found three "substantial savings" that would help free up money to fund its school reform measures, which were recommended by the Gonski review.
The measures, which will deliver more than $2 billion of savings, would also ensure the fiscal position of the federal budget was sustainable over the long-term.
But Universities Australia, the peak body representing the sector, said the funding cut was the largest since 1996 and would "place severe strain on a sector that has been encouraged to expand enrolments".
The magnitude of the cuts made to the sector over the past six months would also challenge the ability of universities to continue to meet a high standard of education, Universities Australia chair Glyn Davis said in a statement.
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Dr Emerson's announcement came shortly after Treasurer Wayne Swan flagged a further $520 million saving measure targeting tax deductions for self-education expenses.
Dr Emerson said the government would place a two per cent efficiency dividend on university funding in 2014 and 1.25 per cent the next year, saving about $900 million.
The government will also scrap the 10 per cent discount given to students who pay their university fees upfront, saving $230 million. A five per cent bonus given to students who make voluntary HELP debt payments will also be removed.
A further $1.2 billion will be saved by requiring students to pay back start-up scholarships once they enter the workforce and once an earning threshold is reached.
The savings measures were vital to pay for the government's national school improvement plan, which Dr Emerson said was a Labor priority.
He said there would still be "very strong growth" in university funding and insisted the government would not be capping university places.
But measures, like discounts given to students paying fees upfront, were unsustainable.
"In an ideal world where there were no fiscal constraints, maybe these sorts of policies have been sustainable," the minister said.
Opposition education spokesman Christopher Pyne accused Labor of robbing Peter to pay Paul.
"Yet again, the Gillard government has demonstrated that they have their priorities all wrong," he said in a statement.
Mr Pyne called on the government to cut red tape in the education sector instead of funding.
Australian Greens Leader Christine Milne said cutting one area of education to fund another was wrong.
"If you undermine education outcomes you undermine the future," she said in a statement.
Senator Milne said the cuts were a "direct result of the government's failure to fix the mining tax", which had only raised $126 million in its first six months of operation.
The Australian Medical Students' Association said the measures would threaten the quality of Australia's future university graduates.
