Education Minister Simon Birmingham says universities have benefited from booming student numbers in recent years.
But he says that rise in student numbers has taken a toll on the Budget.
"Outstanding taxpayer-funded student loans have tripled since 2009, now standing at more than $52 billion. And without changes to this situation, the government actuary estimates that around a quarter of that is expected to go unpaid."
So the Government is taking steps to get loans paid back sooner.
The income level at which former students need to start paying back their loans would fall from nearly $56,000 per year to $42,000 a year.
Student fees would also rise, by up to $3,600 for a four-year bachelor's degree.
And universities will have their government funding reduced by nearly $3 billion.
Labor's Tanya Plibersek says those cuts will have a serious impact.
"These cuts make it harder to deliver top quality teaching and harder to do the research that keep universities relevant, that keep their academic staff engaged, that give their students opportunities to become researchers themselves."
Some of the Abbott Government's controversial university reforms have been dropped, including a proposal to let universities set their own fees.
The Education Minister has confirmed those ideas will not be part of the bill the Government introduces into parliament.
"Students will no longer face the prospect of fee deregulation, and universities will not face a 20 per cent cut to their funding."
But Tanya Plibersek says it is hard to feel any relief about that with the other changes.
"The fact that the Government wasn't able to get the worst of its package through the Senate I don't think should give people too much comfort. We should be investing in our universities. They're a great driver of economic productivity in this country. We need educated Australians to do the jobs of the future."
But Deputy Prime Minister Barnaby Joyce has accused the Opposition of hypocrisy.
He says the former Gillard Government planned to cut billions from universities to help pay for its Gonski school reforms.
"Let's remember that, when Julia Gillard and Kevin Rudd - or whichever was there last - when they were leading, they were going to find $6 billion worth of savings in higher education. What we do know is we have to try and make our ends meet. As much as people hate that, we have got to try and make sure the budget balances."
