The number of university student places is expected to be capped from next year as part of the Federal Government's latest plan for higher education.

Key points: Massive proposal to introduce higher fees, make students pay back loans faster got knocked back by Senate in October

Massive proposal to introduce higher fees, make students pay back loans faster got knocked back by Senate in October With few options left, re-introducing cap on government-funded places could save up to $1.5b

With few options left, re-introducing cap on government-funded places could save up to $1.5b University sector says cap could make things harder for prospective students

In Monday's mid-year economic update, the Government will unveil its next move as it tries to recover more than $2 billion in savings from the sector.

Education Minister Simon Birmingham was forced back to the drawing board after the Senate blocked his plan announced back in the May budget.

That proposal included a move to introduce higher fees for students and to make them pay back their HELP loans sooner.

Cuts to university funding were also proposed, but the Government could not convince the Senate crossbench to back the changes.

The Grattan Institute's higher education director, Andrew Norton, said there were not many options left on the table.

"I think the sector and possibly the crossbench had been assuming if they could defeat the budget legislation then the status quo would prevail, but it's increasingly unlikely the status quo will prevail," he said.

So what's left? Limit uni places

In 2012, the Federal Government introduced a demand-driven system for public universities.

The limit on government-funded places for bachelor degrees was removed, allowing universities to enrol as many students as they wanted.

The idea was to make university more accessible, to get more students from different backgrounds and to train more skilled workers for the future.

Since then the number of commonwealth-supported places for domestic students has grown from around 469,000 in 2009 to 615,000 in 2016.

Mr Norton said reintroducing some type of cap or limit on places could save the Government up to $1.5 billion.

"I think this would be a sad day for higher education policy because I think the demand-driven system has been one of the big successes over the last seven or eight years," he said.

"It has increased participation in higher education and it's given the system a dynamism that it just didn't have before, so universities can start whole new ventures or whole new courses free of interference from the government.

"My view remains that the things in the budget would have been much preferable to a cap on the demand-driven system."

He said the Government could choose to cap places at the 2017 level or a slightly higher benchmark without parliamentary approval.

"The other possibility is they go back to the crossbench and say, 'Well, will you legislate some better savings than this so that we don't have to do it or we can remove the caps sometime in 2018?'"

Cap could make things harder for prospective students

Universities Australia chief executive Belinda Robinson also warned against a limit on government-funded places.

"Such action would be in direct defiance of the will of both the Australian people and the Parliament," she said.

"Now, more than ever, the economy needs more people with higher skills and investment in research to drive innovation."

The Opposition's education spokeswoman, Tanya Plibersek, said putting a cap on places would make it harder and more expensive for students to go to university.

"This would be the end of the demand-driven system, the system that threw open the doors to uni for 190,000 extra students," she said.

Prime Minister Malcolm Turnbull said yesterday the Government, "[would] not be reducing the overall level of funding support to higher education from what was provided in the budget".