Federal Education Minister Christopher Pyne has floated the idea of collecting student debts from the dead as a way of boosting the budget bottom line.
Mr Pyne told Fairfax Media on Wednesday he had no "ideological opposition" to collecting debts from the estates of former students who died owing money to the government.
"[If] an elderly person passes away with a HECS debt, they wouldn't be able to say to the bank, we're not paying back our mortgage, yet they are at the moment entitled to not pay back their HECS debt," Mr Pyne said.
Mr Pyne said safeguards would be needed to ensure the families of young deceased students would not be affected.
"For example you might want to have an age limit," Mr Pyne told The Australian Financial Review. ''This would ensure that families of people who died young owing a HECS debt would not be penalised.''
Prime Minister Tony Abbott, however, on Thursday morning ruled out the move to collect fees from dead students' estates, telling ABC radio that the existing arrangement regarding HECS debts would not be changed.
Labor, the Greens and the Palmer United Party are opposed to the government's plans to deregulate university fees and increase the interest rate on HECS debts. If these measures are blocked in the Senate it would hit the government's bid to return to surplus - making the politically-sensitive idea of collecting money from the dead more attractive.
The Grattan Institute estimates the policy, which was not part of the budget, could save up to $800 million a year.
Labor higher education spokesman Kim Carr branded the idea a death tax.
"The government is grasping for a distraction to its policies," he said. "This would cut to the core of HECS by introducing a death tax that may cost more to administer than it would raise in revenue.
''The idea of HECS is you only repay it when you are earning above the threshold."
The speed of the government's higher education changes have alarmed some university vice-chancellors, who are calling on the government to delay its reforms. In an interview with Fairfax Media last week Mr Pyne compared vice-chancellors to birds who have been set free but are too afraid to fly.
Mr Pyne's comments came as universities denounced the decision to axe of one of former treasurer Peter Costello's proudest achievements: a permanent higher education endowment fund.
Students are likely to bear the cost of new infrastructure projects through increased fees in a deregulated system, according to Les Field, deputy vice-chancellor (research) at the University of NSW.
Professor Field said the demise of the Education Investment Fund (EIF) raises concerns about whether the main sweetener in this year's budget, a $20 billion medical research fund, will be raided by politicians in the future.
"This was a bold vision to put investment into university infrastructure onto a sustainable footing,'' Professor Field said. ''Now it's back to being a perpetual problem. It's really disappointing the money hasn't been directed to science and university infrastructure.''
The fund, the centrepiece of the Howard government's last budget in 2007, was established to finance major university capital works projects and research facilities.
The fund helped finance the University of Sydney's Centre for Obesity, Diabetes and Cardiovascular Disease, Melbourne University's Peter Doherty Institute for Infection and Immunity and an RMIT design hub also in Melbourne.
Labor was accused of using the fund as a "personal piggy bank" in office by spending money on small-scale projects and failing to top it up with more money.
The Abbott government will shut down the fund and redirect its $3 billion reserves to an "asset recycling scheme" to encourage states to privatise government assets.