The Turnbull government will slash university funding by hundreds of millions of dollars in the May budget while hiking student fees and requiring graduates to pay back their loans faster.
The government will justify the cuts by pointing to a major new report which found universities receive adequate funding for most courses they teach and that their revenues are growing faster than costs.
Despite pleas from universities that they cannot absorb any more cuts, Fairfax Media understands they will be hit with a new efficiency dividend of between 2 and 3 per cent to be phased in over several years.
Education Minister Simon Birmingham, who will address university and business leaders on Monday night, is expected to release the government's higher education reform package in coming days.
The pain will be shared between universities and students, who will see a rise in course fees and a lowering of the HECS repayment threshold from the current $52,000. It is understood the fee increases will be significantly lower than a speculated 25 per cent hike.
A 3.25 per cent efficiency dividend, originally proposed by Labor, would reduce university funding by approximately $900 million over four years.
The government will soften the blow by increasing funding for dentistry and veterinary science courses, which are expensive to teach. It will also finally abandon plans, introduced in the 2014 budget, to reduce university course funding by 20 per cent.
Senator Birmingham will on Monday release a new report, commissioned by the government, that provides the most detailed picture ever compiled of the cost of delivering university degrees.
The Deloitte Access Economics study found universities receive sufficient revenue – through government funding and student fees – to cover the cost of teaching most degrees.
For example, the average annual cost of providing an engineering degree was $22,514 per student in 2015 compared to total funding of $26,623 per student.
A clinical psychology degree cost universities an average of $13,528 a year to deliver while attracting $18,711 in total funding.
Two clear exceptions are dentistry and veterinary science, which the study found to be significantly underfunded.
Fairfax Media understands the government will provide top-up funding for these subjects in the budget through new loadings.
The Deloitte report, based on data from 17 universities, shows the average cost of delivery for universities increased by 9.5 per cent from 2010 to 2015 while revenue grew by 15 per cent.
"This independent analysis speaks for itself," Senator Birmingham said.
"Funding for our universities is at record levels, but it has grown above and beyond the costs of their operations.
"Universities have a vital role to play in Australia but many mums and dads are feeling the pinch of tighter budgets at home and want to know their tax dollars are being used effectively and efficiently."
Senator Birmingham said he would not pre-empt the announcement of his reform package but added: "In the context of a tight national budget, the Turnbull government is focused on getting the best return for every taxpayer dollar invested."
The Deloitte report notes that universities also use their teaching revenue to cross-subsidise research and other activities.
Universities Australia last week released a report showing universities and students have contributed $4 billion to reduce the deficit since 2011 and that further cuts could put some universities in a precarious position.
"Universities and their students have already done more than their fair share of budget repair," chief executive Belinda Robinson said.
"In this context, it is difficult to justify further cuts that would affect student affordability and put at risk the quality of education and research on which Australia's prosperity depends."
Universities recorded an average profit margin of 5.3 per cent in 2015, with the University of Sydney and University of Melbourne recording strong surpluses of $157 million and $141 million respectively.
Vice-chancellor salaries have also soared over recent years, with nine vice-chancellors receiving annual pay packets over $1 million.
The government will also on Monday release an implementation plan on measures to increase the transparency of university admissions.