The Turnbull government faces blanket opposition among vice-chancellors to its proposal to create a new tier of courses with deregulated fees, with even the nation's most prestigious universities rejecting the idea.
The government floated a new model of "flagship courses" in the May budget and Prime Minister Malcolm Turnbull promoted the idea during the election campaign.
Universities would be able to set their own fees for courses in which up to 20 per cent of their student cohort is enrolled.
But the proposal has been rejected by the elite Group of Eight (Go8) universities, which would stand to benefit the most under the policy, as well as the technical and regional networks of universities.
The Group of Eight - which includes the University of Sydney and University of Melbourne - were the strongest backers of the Abbott government's plan to fully deregulate fees.
In its submission to the government on higher education reform, the Go8 says flagship courses would add a "significant layer of complexity" to higher education and would be unlikely to solve the sector's funding problems.
"There is a risk that such a proposal could distort incentives for universities and entrench a two-tiered system of university education between flagship courses and others - both between and within universities," the Go8 says.
The group says it is also unclear how flagship courses would encourage more Indigenous students, regional students and students from low socio-economic backgrounds to attend university.
The Australian Technology Network of Universities - representing RMIT University, the University of Technology, Sydney and other universities - said flagships could lead to "perverse outcomes".
"The proposed model has the potential to devalue existing degrees and create a two-tiered university system," the ATN warns.
"This could see an inequitable drift of those who can afford to pay into certain 'prestige' offerings in self-identified 'prestige' institutions - with a lessening of the perceived value of similar offerings in other universities."
Disadvantaged students may also be "locked out" of higher education study, the group warns.
The Regional Universities Network said flagships may benefit some elite institutions but would have little value for regional universities.
The ATN instead offers its own proposal for reform: linking future fee increases and enrolment growth to performance targets for universities.
Only universities with strong competition and graduate employment rates would be able to increase their fees or student numbers.
The group suggests this as a solution to the massive surge in enrolments, which has blown out the education budget by billions of dollars, following the introduction of uncapped places in 2012.
The Group of Eight also backs the "moderation" of the demand-driven system, which allows universities to enrol as many undergraduate students as they please.
At the final debate of the election campaign, Mr Turnbull said: "What we are doing, of course, is seeking to reform and provide more flexibility to universities.
"We are not going to deregulate fees entirely.
"The [Education] Minister, Simon Birmingham, has announced that what we will seek to do is to offer the universities the ability to deregulate fees, if you like, for a small number of flagship courses so that they can compete, so that you do get more competition between universities."
Senator Birmingham had previously indicated his support for flagship courses as a way to encourage innovation, but stressed he was taking a "no-surprises, consultative approach" with the sector.
"Our determination to ensure equity, excellence, innovation and budget sustainability in higher education remains," he said.
Without the support of the Labor and the Greens, the government will need to convince the Senate crossbench to back any changes to higher education.
The government's discussion paper, released with the May budget, included other proposals such as recovering HECS payments from deceased estates, tying loan repayments to household income and overhauling postgraduate education.
Follow Matthew Knott on Facebook and on Twitter
