A deal hammered out between Labor and the coalition on changes to the youth allowance threatens to split apart regional communities, the Nationals say.
The minor coalition partner is not happy with a compromise likely to win Senate approval later today.
Nationals leader Warren Truss said the deal fell well short of what was needed, with only 1,900 students out of an estimated 12,000 likely to benefit.
News that makes sense
Your trusted source for staying up-to-date with the world around you. Get free daily news updates and analysis, straight to your inbox.
"And most of those 1900 are going to come from cities like Cairns, and Townsville and Darwin," he told reporters in Canberra on Wednesday.
"The boundaries on the map are really quite ridiculous."
The Nationals are putting forward amendments to "fix the mess", with neither Mr Truss and colleague Darren Chester ruling out crossing the floor on the legislation.
Mr Chester said the government's proposal left simply too many winners and losers.
"Regional communities are going to be divided," he said on Wednesday.
"In my electorate, towns two and three minutes apart are going to be excluded on the basis of a line of a map."
"You can't discriminate among regional students on the basis of this geography."
Independent senator Nick Xenophon said the deal was a sensible compromise, but there were still improvements to be made.
"It is by no means perfect but given the parameters that these negotiations took place in terms of budgetary constraints, I believe it is an improvement on the old system," he said.
There were adequate safeguards with the $20 million hardship fund so if there were cases of hardship they would be dealt with, he said.
"It's a sensible compromise."
Nationals senator Fiona Nash said the coalition had tried to make a bad bill better.
Its amendments will ensure that all regional students are treated fairly, she said, while backing tertiary access allowance for regional students to replace the independent youth allowance provision.
Under the deal, all retrospectivity will be removed from Labor's draft laws so students working in good faith under the old rules still get the welfare benefit.
Additional workforce participation tests will also be retained for students living in remote regional areas.
They can now qualify for Youth Allowance by working 15 hours a week over two years or earning almost $20,000 in 18 months.
The government had wanted to tighten the benefit's eligibility criteria so that young people had to work an average of 30 hours a week for 18 months to qualify.
The legislation gives thousands of students university scholarships as well, however their value has been cut to ensure
concessions in the deal are budget neutral.
Draft laws outlining the changes, listed for Senate debate on Wednesday morning, are expected to be passed.
Education Minister Julia Gillard said a split between the Liberals and Nationals on the changes would be a breach of an undertaking given by her opposition counterpart Christopher Pyne.
"All of this has been dealt with as an opposition position," she told reporters in Canberra.
"Mr Pyne has given an undertaking for the opposition - we expect Mr Pyne and the opposition to abide by those undertakings."
Independent MP Rob Oakeshott said the deal made the government's legislation worse by providing an easier path for rich families to access youth allowance.
"The Bradley reform agenda (into tertiary education) has been dealt a blow today by this hybrid scheme," the NSW north coast MP said in a statement.
Means testing family income so that more money could go to the poor was an "eminently sensible reform".
The deal risked causing divisions within the community, Mr Oakeshott said.
"Where one side of some streets will be in and the other side will be out."
