Removing the government's cap on student contributions would be akin to a Medicare levy with wealthier students paying more and poorer students supported through scholarships, Australian National University vice-chancellor Professor Ian Young says.
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In a push to increase the revenue the ANU can take from domestic students, Professor Young and ANU chancellor Professor Gareth Evans have proposed the deregulation of student contributions, which they say would allow Australian universities to offer courses on par with the world's best.
However the National Union of Students (NUS) has already slammed the suggestion saying it would allow university fees to shoot up, leaving students with more than a decade of HECS-HELP debt and disadvantaging those from low socio-economic backgrounds.
Professor Young said he and Professor Evans expected opposition from students and unions, but wanted them to do is think hard about the proposal.
"Obviously they'll have concerns of access and equity, [but] if we structure the system properly if an institution raises money above the base line percentage it would have to go into funding for scholarships," he said.
But Ms Taylor said the union did not want students to be dependent on the "idealistic vision" of scholarships.
"On paper it sounds like a good system, but what we want to see is enough public funding of education," she said.
"We don't want to limit access to university to a select few."
For Commonwealth subsidised university places the federal government groups areas of study into three bands and sets minimum and maximum student contributions for each.
University chiefs across the country have long advocated for an overhaul of the system.
ANU's proposal would cap the total income universities receive from domestic students - both student and commonwealth contributions - at the same rate as the international student fee for each course.
Professor Young said he was yet to calculate what the average course increase would be, but he believed universities would raise contributions in a "measured way" in a system similar to progressive taxation or a Medicare levy.
"Now all students pay the same [but] in the future a diverse system would mean those from wealthy backgrounds would pay more and those from poorer backgrounds would receive scholarships," he said.
Under the current fixed-funding model, universities are tempted to "cram" students into courses to increase income.
But Professor Young believes an overhauled system would create more diversity in the industry and students would quickly turn away from institutions that charged a premium by increasing fees without offering a better service.
NUS national president Deanna Taylor said the union shared Professor Young's concerns about the quality of education, with students across the country complaining of overcrowded classrooms and a casualised teaching force.
But Ms Taylor said burdening students with more debt was not the answer.
Professor Young proposes the deregulated system be phased in so current students avoid being stung with higher course costs.
As chair of the Group of Eight - the body representing the vice-chancellors of Australia's leading universities - he hopes his proposal will prompt public debate in the lead up to the federal budget, which he believes will present challenges for the industry.
Although Ms Taylor acknowledged an increase in public funding for unversities was unlikely, she said the government should not be absolved of its responsibility to invest in education.
"The previous government had a position against fee deregulation, but we don't have the same confidence in this government," she said.
"The HECS debt is listed as a government asset, so financially it's in their interests to pass the burden to students and increase the HECS debt overall."
