Christopher Pyne has endorsed the idea of allowing universities to compete on price.

Christopher Pyne has endorsed the idea of allowing universities to compete on price. Photo: Andrew Meares

Federal Education Minister Christopher Pyne has come out strongly in support of allowing Australia's universities and colleges to compete on price by deregulating what fees they can charge students.

In a speech on Thursday that sets the scene for the biggest reforms to higher education in a generation to be announced in the budget, Mr Pyne will say that price competition, freedom from red tape, and giving transparent information to students about study options are critical to improving Australia's higher education system.

He will say if Australia is to achieve world class status it will "require government to change the way it treats universities and colleges, and to give them more freedom to do what they do best".

"If universities and colleges were able to compete on price, it would mean they must have a greater focus on meeting the needs of students.

"They would need to continuously improve the teaching and learning they offer to attract students," he says in the speech.

Mr Pyne says the budget will include a "fair and balanced higher education and research reform package".

He says the reforms will draw on the last week's audit commission report which recommended university fee deregulation and called for students to pay more.

In his speech, Mr Pyne does not say whether he expects fees for undergraduate university degrees to rise as a result of deregulation but will say that growth in university participation is "putting a strain on our ability to support so many students".

His speech also strongly endorses Australia's income contingent loan system for higher education fees, known as HECS.

Mr Pyne will say the current system, which allows students to study at university "without them having to pay a dollar up-front" must continue.

"I am committed to strengthening this loan scheme to ensure it is affordable for students and the taxpayer into the future and remains a central component of our approach to higher education."

Mr Pyne will say Australia's higher education system risked being left behind, particularly by China.

"Chinese universities are gaining in international standing at a rapid pace, and ours are not," the speech says.

He says much work remains to be done on his plans for higher education reforms.

He says if the government accepts the recent recommendation of the Kemp-Norton review to expose universities to more competition from private colleges and TAFEs, then "there would need to be careful attention given to how this is done".

The Kemp-Norton report called for the playing field to be levelled, with non-university higher education providers also to receive Commonwealth subsidies with their students eligible for HECS loans.

However, in his speech Mr Pyne says it would be "appropriate" for non-university education providers "to be funded at a lower rate than universities" because they do not need to fund research activities. He also strongly backs another Kemp-Norton recommendation for the federal government to subsidise pathway programs into universities and to offer HECS loans to help students pay the fees.

He says the higher education and research reforms to be announced in the budget will respond to last week's audit commission recommendations. 

Read more at AFR.com