Eight Illawarra schools could lose their welfare officers following changes to the Federal government school chaplaincy scheme.
In June, the High Court ruled it was unlawful for the Commonwealth to directly fund school chaplain providers. The government has redesigned the $244 million program to now provide funding to the states and territories to run the scheme.
The recent federal budget awarded funding to the program for the next four years, but this money only applies to chaplains and not secular counsellors.
In a cabinet meeting on Monday, government ministers explored extending the scheme to include funding for secular welfare workers, but the Prime Minister argued the government should stand by its existing policy.
In the Illawarra 25 schools currently receive funding under the program, with eight choosing to employ a secular welfare worker.
Throsby MP Stephen Jones and Cunningham MP Sharon Bird were concerned not allowing schools to hire secular counsellors would be detrimental to students.
Mr Jones said the government had weakened support for the scheme by only providing funding for chaplains.
"The scheme was contentious from the get go. I think we reached a consensus between those who wanted the federal government to pay for religious instruction and those who thought that that didn't sit well with public education.
The compromise was to open the program to school counsellors," he said. "This has destroyed that compromise."
Parliamentary secretary Scott Ryan said the government believed school chaplains made a valuable contribution to students' wellbeing and encouraged state and territory governments to accept the invitation to participate in the program.
Chaplains can be of any faith, cannot proselytise and must meet minimum qualification standards. Participating schools will be eligible for up to $20,000 a year in assistance.