At the current rate of funding, and with the loss of a chunk of the lucrative international student market, the University of NSW will have a deficit of $100 million, Fred Hilmer, the university's vice-chancellor and chairman of the Go8, said.

''If there's no growth [from international students], and the money we get for the Commonwealth student is limited to inflation, and we continue to have wage rises and other cost increases that soak that up, then in three years time we'll have an accumulated deficit of close to $100 million,'' he said.

University funding has come under renewed scrutiny with the release yesterday of a report by the independent policy group The Grattan Institute recommending that students pay a higher contribution to their education costs and governments redirect money used to subsidise higher education places.

In comments to the Herald, Professor Hilmer built on his recent speech at the National Press Club about the hurdles universities face in remaining viable and competitive. Without adequate resources, UNSW would stop spending on facilities and the quality of education would deteriorate to unacceptable levels, he said yesterday. Class sizes would continue to rise and smaller courses would go.

''At the moment the university is spending $60 million to $80 million in learning systems. If we don't spend that money we aren't going to be players today in the world. It's not a rapid death; it's death by a thousand cuts. We will keep operating and we will find it harder and harder to maintain the quality of facilities and services.''

Australia has one of the lowest spending rates on higher education as a proportion of GDP than most other OECD countries at 0.7 per cent.

The Tertiary Education Minister takes umbrage at the suggestion that the government is not committed to investing in higher education, saying the rate of funding per student had risen since 2007 rates, in addition to the new funding for unlimited students. Senator Chris Evans said Australia would not follow the path of the United States where student debt levels from rising fees have become an unmanageable burden.

''We don't want to get to that situation. It is true that some of the elite unis would be able to charge more and still attract students and Professor Hilmer is probably part of that group, but the reality is we have 39 universities trying to provide a broad education to hundreds of thousands of Australian students and it's about the health of the system not just about one university.''

It is the health of the economy that most concerns Belinda Robinson, chief executive of Universities Australia and she is not confident we are doing enough to address it.

''We're at risk of suffocating the very industry that offers the most potential for us to meet this transformation challenge through ill-conceived, ill applied regulation.

''It's through universities and public research more broadly that we will be producing the technology that we need to be able to maintain our international competitiveness and producing the people we will need to address that challenge and unless we do we may well be left behind by a very very determined and assertive Asian region.''