Establishing suitable levels of access to higher education and funding academic research infrastructure are challenges that face many countries. Australia has long been in the vanguard of providing publicly funded student loans, while funds for its laboratories are all too scarce. So a significant change in its approach to higher education is worth watching. The Australian federal government has now unveiled its plan for the most significant reform of the nation's universities in more than a decade. The blueprint seems to reflect the government's philosophy of 'the user pays' and the promotion of élite institutions. The good news is that the universities will probably receive more money. But there are concerns about growing student debt and potential government influence over university curricula.

The blueprint allows universities to ratchet up student fees and increase the proportion of full-fee-paying students. Currently, universities enroll students through two routes. For government-subsidized places, students contribute a proportion of the costs, payment of which can be delayed until they have graduated and reach a threshold salary in the workplace. Alternatively, university places can be filled with full-fee-paying students, who, in some instances, can gain entry on lower academic scores than those competing for subsidized places. Under the new scheme, the proportion of university places available for full-fee-paying students will rise from 25% to 50%. The fee contributions demanded of government-subsidized students can be increased to 30% above current levels.

It is not surprising that many university chiefs have embraced this partial fee deregulation, as universities are parched from years of declining government funds. Alarmingly, the modest additional government contribution to courses — A$404 million (US$267 million) over four years from 2005 — has strings attached. The universities must comply with reforms including individual workplace agreements, restrictions on industrial action and the abolition of compulsory student unions. Furthermore, the government will negotiate contributions to each individual institution, and it is unclear whether it will play a controlling or a consultative role in determining the type of courses and number of places offered by different universities.

The reform is a realization of the government's ambition to propel a few Australian universities into the upper echelons of global tertiary institutions, attracting élite academics and conducting world-class teaching and research. Beneath these will be a spectrum of less prestigious, more vocationally oriented universities, which are likely to be more focused on teaching than research. Some universities are likely to focus on their strengths in order to attract fee-paying students, leading to specialization in some parts of the sector. This is desirable: in a country with a limited population and resources, the idea of all universities trying to be all things to all people is hopelessly idealistic.

An egregious omission from the reform package is any mention of further infrastructure support for universities, many of which have to use teaching money to support their research, as Australian grants rarely cover overheads. The government must redress this when it completes its ongoing audit of the nation's scientific landscape.

But is further exposing the universities to market forces the best way of obtaining excellence? For a nation hoping to benefit economically and socially from the fruits of world-class university research and teaching, more substantial government investment would have been appropriate. Driving universities to compete for fee-paying students runs the risk of reshaping universities as sites of vocational training rather than as places of higher learning. Without striking the right balance between public funding and student contributions, the Australian government may severely blunt the leading edge, both in education and research, that its best universities represent.