The package presents a more measured approach than the Abbott government's disastrous 2014 budget - which proposed the full deregulation of university fees and a 20 per cent funding cut - but still carries political risk for the Coalition and will be difficult to get through the Senate. 

The lowering of the HECS repayment threshold - down from the current $55,874 - is more dramatic than expected and will see almost 200,000 extra graduates dragged into the repayment system. The threshold was previously legislated to fall to $52,000 in coming years. 

Universities will also be hit with funding cuts through a 2.5 per cent efficiency dividend in the package, designed to save the budget $2.8 billion in total over the next four years.

The changes, unveiled by Education Minister Simon Birmingham on Monday night, will also for the first time link university funding to success in completion rates, student satisfaction and employment outcomes.

Describing the package as "fundamentally fair", Senator Birmingham said the changes would more evenly distribute the costs of education between students, taxpayers and universities.

If the package is legislated, a series of staggered fee increases will start from next year that will see the cost of a degree increase by 7.5 per cent by 2021.

Fees would increase by a maximum of $3600 for a four-year course, with students paying 46 per cent of the cost of their degree on average - up from 42 per cent currently.

The cost of four-year teaching and nursing degrees would rise by $1250 to $27,800 while the cost of a six-year law degree would rise by $3900 to $71,900.

This shows Labor's warnings of "$100,000 degrees" under the government's policies were scaremongering, Senator Birmingham said.

The lowering of the HECS repayment threshold - which applies to all student loans, including for vocational courses - will see low-income earners begin repaying their debts far earlier in their careers.

But repayment rates will be changed so students only start paying back 1 per cent of their income when they earn $42,000 with repayment rates rising in line with income. 

Graduates will start paying back 7 per cent of their income when they hit a salary of $84,513 rather than $91,426 currently.

In a speech to university and business leaders on Monday night, Senator Birmingham said the new repayment threshold was 20 per cent above the minimum wage.

"This proposal is fair, measured and modest," he said.

"At a repayment rate of just 1 per cent an employee will pay back just $8 per week of the student loan that funded the university degree."

Change was needed because outstanding student loans have tripled since 2009 and now stand at over $52 billion, he said.

The government will also make 7.5 per cent of university course funding contingent on performance. 

This will first relate to being more transparent about admissions requirements before being extended in 2019 to new metrics such as course completions and graduate outcomes.

As revealed by Fairfax Media on Monday, funding for dentistry and veterinary science degrees will be increased through new loadings.

Contrary to speculation the Higher Education Partnership and Participation Program - designed to help disadvantaged students succeed at university - would be axed, the government will instead embed it into legislation.

Permanent residents and New Zealand citizens will no longer receive subsidies to study at university and will have to pay full fees. But they will now be able to defer their fees through student loans.

New scholarships for postgraduate courses will be introduced and $15 million allocated to the establishment of new regional study hubs.

Labor education spokeswoman Tanya Plibersek said raising student fees and cutting university funding showed the government was "out of touch".

The Gillard government announced a 3.25 per cent efficiency dividend on universities in the 2013 budget to help pay for its Gonski schools package.

National Union of Students president Sophie Johnston said: "Students can't understand why this government continues to force students to pay for their budget ... what we are seeing is a reverse Robin Hood - taking from the poor to support the rich."

smh.com.au