Australia's pioneering student-finance programme, which has served as a model for reformers worldwide, is to become a market-based system.
The Higher Education Contribution Scheme (Hecs) will be supplemented with a scheme that levies near commercial interest rates while universities will be free to charge top-up fees.
The shift, announced in the federal budget on Tuesday, could mean increases of up to 30 per cent for those starting a degree in 2005.
The Higher Education Loan Programme (Help) will bear an interest rate of 3.5 per cent. Help will be restricted to a maximum of A$50,000 (£20,000) even though many courses cost far more, and will be available to students in public and private higher education institutions. Students will no longer have to pay fees up front.
Universities will be allowed to set varying amounts for similar degrees for the first time, while doubling the number of places for which full fees are levied. Currently universities are restricted in how many home students they can admit who are prepared to pay full the fee to 25 per cent of enrolments in any one course.
Universities will receive a A$10 billion boost in government spending over the next decade. But students will bear a much greater share of the costs in higher fees and charges.
The increase will be tied to management and industrial changes that have caused alarm among staff and student groups. Universities that meet guidelines for composition of governing councils and that offer individual employment contracts to staff will be able to tap a new A$400 million fund over three years.
Education minister Brendan Nelson said the reforms would establish an integrated policy framework in which universities would be freed from unnecessary constraints and able to maximise new opportunities.
The Australian vice-chancellors' committee welcomed the promise of increased spending and more autonomy.
But Carolyn Allport, president of the National Tertiary Education Union, accused the government of having a vendetta against her union by making the A$400 million conditional on universities forcing staff to accept individual contracts, and planning to remove the right of staff to strike.
Daniel Kyriacou, president of the National Union of Students, said replacing Hecs with a market-based fee scheme would hit students from working-class and rural backgrounds hardest.
"The fees and charges introduced in this package will lead to a generation loaded with debt. Debt will be a ball and chain around the aspirations of graduates on everything from buying a home to starting a family, to saving for the future," he said.