University graduates will be forced to pay back their HECS debts when they start earning just $42,000 a year and student fees will rise by 8 per cent under the Turnbull government's higher education changes.

The package presents a more measured approach than the Abbott government's disastrous 2014 budget - which proposed the full deregulation of university fees and a 20 per cent funding cut - but still carries political risk for the Coalition and will be difficult to get through the Senate.

The lowering of the HECS repayment threshold - down from the current $55,874 - is more dramatic than expected and will see almost 200,000 extra graduates dragged into the repayment system. The threshold was previously legislated to fall to $52,000 in coming years.

Universities will also be hit with funding cuts through a 2.5 per cent efficiency dividend in the package, designed to save the budget $2.8 billion in total over the next four years.