"It is easy to say that education should be free — and I agree — but much harder to acknowledge that 40 years after the abolition of up-front fees, government-subsidised places are still not accessed equally by everyone in the Australian community. The University of Sydney. Credit:Phil Carrick "The status quo is not perfect and any assessment of future options should not pretend that it is." New Education Minister Simon Birmingham has said he is "all ears" for ideas from university leaders on how to improve the higher education system. Dr Spence said the way Australia currently funds its universities will not deliver the innovative, high-skilled workforce both major parties say is essential for the country's economic prosperity.

The only way universities will reach their potential is by increasing public funding, raising student fees or spending existing funding more effectively, he said. "All three of these have to be on the table if we are going to find a solution. We are not going to discover a magical new source of money. "If Australia's future lies in innovation then research and training will have to be priorities. We need a totally new conversation about how we fund higher education." Dr Spence said the main barrier to poorer students attending university is not fees, which are repaid only when students start earning a decent wage, but everyday living expenses such as accommodation, food and travel. "The big challenge for many kids going to university is not how to pay their fees but how to eat," he said.

He acknowledged the case for increased fees, including the ability to use the extra revenue to fund scholarships for low-income students, had not been properly explained to the public. Dr Spence said it was undeniable that government grants do not cover the cost of university research, meaning universities are reliant on profits from international and postgraduate enrolments to fund research. Universities also make a loss on many undergraduate teaching courses such as medicine, agriculture, dentistry and veterinary science, he said. The University of Sydney, for example, loses $20,000 a year for each medical student it enrols. Education and Training Minister Simon Birmingham said this week that the government is not wedded to fee deregulation but does not want to fund universities by "cramming more people into lecture theatres". "Deregulated fees is clearly one approach the government has put forward, but if there are different models I'm all ears," he said.

Universities Australia chief executive Belinda Robinson urged the government to "go back to a blank piece of paper" on higher education reform rather than look for a quick compromise to win Senate support. "We don't want to see piecemeal policymaking," she said. "It would be really worrying to pick out bits of the current reforms because the crossbenchers may support them." Innovative Research Universities chief executive Conor King said ideas such as raising the cap on the amount universities can charge are now "back in the mix". This idea has been backed by crossbench senator Nick Xenophon, HECS architect Bruce Chapman and University of Technology, Sydney vice-chancellor Attila Brungs. "I don't think full-on deregulation has any legs in the short to medium term," Mr King, who represents universities such as Flinders University and Griffith University, said.