The Federal Government has announced a $2.8 billion cut to the university sector to help pay for its school education reforms as recommended by the Gonski review.

From January next year universities will be hit by a 2 per cent efficiency dividend, saving the Government $900 million.

A 10 per cent discount on the upfront payments of HECS loans will be dumped at a value of $230 million and Student Start Up Scholarships would need to be repaid once the student begins working.

In announcing the measures on Saturday, Tertiary Education Minister Craig Emerson said the changes were vital for the future of school education.

University cuts Savings Efficiency dividend $900m Scholarships repaid $1.2b HECS discount abolished $230m Tax concession cap $500m Total savings $2.8b

"We have said consistently we will implement Labor priorities and this national school improvement plan is a Labor priority," he said.

"We have also indicated we would ensure that the fiscal position of the Budget is sustainable over the long-term and, therefore, that room would need to be made for the national school improvement plan.

"I am here to indicate where savings will be found from within the higher education Budget in order to assist in funding the national school improvement plan.

"There will be an efficiency dividend of 2 per cent in 2014 and 1.25 per cent in 2015, saving around $900 million.

"At present, those students or parents who pay their university fees up-front enjoy a 10 per cent discount compared with those who make them into a loan which is repayable out of income subsequently earned from their university education."

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Treasurer Wayne Swan has also announced tax concessions for work-related self-education expenses will be capped at $2,000 per year.

This measure will save the Government $500 million over the forward estimates.

The funds will also go towards Gonksi reforms.

Opposition Leader Tony Abbott says higher education is the latest victim of the Government's funding cuts, and the sector has already been hit hard.

"This is on top of the $3.9 billion worth of cuts to education that the Government announced in the mid-year economic and fiscal outlook statement towards the end of last year," he said.

"The only way to get the investment we need in education and disability services is to build a stronger economy."