The removal of caps on the numbers of students universities can enrol has led to a surge in drop-out rates, a new report by the Productivity Commission has shown.

Key points: Students whose attendance can be ascribed to the demand-driven system had a drop-out rate of 22 per cent

Students whose attendance can be ascribed to the demand-driven system had a drop-out rate of 22 per cent The report found that cohort also entered university with lower literacy and numeracy on average

The report found that cohort also entered university with lower literacy and numeracy on average Universities Australia criticised the report for only examining students under the age of 22

The report found the introduction of the demand-driven system, in which universities could enrol as many students as they liked and be funded accordingly, has brought a mixed level of success.

The number of students from low-socio-economic backgrounds, often the first in their family to attend university, has grown significantly, but the proportion of students from rural and remote backgrounds has not increased markedly.

The Productivity Commission report found the uncapping of student places had led to a big increase in the number of students enrolled at university.

Sixty per cent of young people had attended university by the age of 22 in 2016, compared with 53 per cent in 2010.

The demand-driven system was introduced to universities from 2009.

The Productivity Commission used government data and longitudinal surveys to identify cohorts of students that enrolled in university between 2009 and 2017, who would not have had access to university prior to the introduction of the demand-driven system.

It is the first major study that has tracked not only which kinds of students gained extra places, but how they fared once they had enrolled and eventually graduated.

It found that the additional students — those whose attendance can be ascribed to the demand-driven system — had a drop-out rate of 22 per cent, compared with 12 per cent of other students.

The additional students entered university with lower literacy and numeracy on average, and 73 per cent had an ATAR below 70, or no ATAR at all.

"Together with the long-term decline in literacy and numeracy of Australian school students, this means that far more students are entering university ill-prepared than was the case prior to the demand driven system," the report said.

The literacy and numeracy of Australian school children has been stagnant or declining for more than a decade.

The Productivity Commission estimated that the average student had fallen behind a whole school year in maths since 2003.

'We're not counting the right cohort'

The National Union of Students (NUS) has warned that not enough remedial support exists for students from diverse backgrounds who have gained places at university since the demand-driven system was introduced.

NUS president Desiree Cai said many students were struggling.

"From my perspective as a student on campus and from hearing from other students around the country, unis haven't been providing enough support for those additional students who are from less-well-off backgrounds," Ms Cai said.

"They don't have enough support for students overall with the increased numbers.

"The cynical view would be that in the current funding environment in the higher education system, unis are increasingly operating like businesses and student success is not as prioritised as student numbers and the fees that come with that."

But Universities Australia chief executive Catriona Jackson said universities had made big strides in extending support to the additional students they enrolled.

Ms Jackson questioned the premise of some of the Productivity Commission's findings.

"It seems to me the measures the Productivity Commission report has taken is they're just looking at students under 22 years of age," Ms Jackson said.

Universities Australia's Catriona Jackson emphasised that some people who leave university return to complete their degree. ( ABC News: Isabel Dayman )

"If you just look at one of those groups, Indigenous students, a third of the Indigenous students who are studying in universities are over 30.

"And those numbers have doubled, by the way. So we're not counting the right cohort.

"The numbers we have always used — and I am sure these are correct — are that regional students have increased by 50 per cent in the last eight years or so.

"Indigenous students have doubled, low-socio-economic students, students from very disadvantaged backgrounds, are up by 66 per cent and students with a disability up by 120 per cent. So these are substantial gains."

Ms Jackson said it was not surprising there had been a shift in drop-out rates, but emphasised that some people who leave university end up returning to finish their degree.

"It would be very unusual when you increase the numbers of people going to universities, some from genuinely disadvantaged backgrounds, if the attrition rate didn't shift a little bit," she said.

"I'd turn it around the other way, though. Four in five of those students who have come from non-traditional backgrounds to universities have succeeded. I think that's a significant achievement."

The Productivity Commission report found the students who gained access to university after the uncapping of places had similar employment outcomes in the long-term to other students.