A planned overhaul of university funding, including higher course fees and a lower income starting point for repayment of student loans, looks dead in the water.
The Turnbull government has failed to convince the Nick Xenophon Team to back its suite of measures in the Senate against opposition from Labor and the Greens.
"We have too many highly qualified young people, with PhD degrees, stacking supermarket shelves or making lattes. We need to do better than this," Senator Xenophon said in a statement on Thursday.
The package included cutting university funding in 2018 and 2019, increasing student fees, lowering the repayment threshold for HECS-HELP student loans and tying a portion of funding to performance measures.
Federal Labor is urging Prime Minister Malcolm Turnbull to drop the "unfair cuts and higher fees" for good.
Labor education spokeswoman Tanya Plibersek said year 12 students were trying to make decisions about what to study at university in 2018.
"But thanks to the mess created by Mr Turnbull, they have no idea how much their degrees will cost," she said.
"This uncertainty must end today."
Universities Australia described the Nick Xenophon Team announcement as a "victory for common sense".
"They have sent a very strong message that pulling public investment out of our university system is not the way to build a stronger, more internationally competitive tertiary education system," Universities Australia chief executive Belinda Robinson said.
