Federal Education Minister Dan Tehan released the draft Job-ready Graduates legislation last week, which would block students who failed more than 50 per cent of eight or more units from HECS-HELP or FEE-HELP.

Mr Tehan said the measure would "ensure students can't take on a study load they won't complete, leaving them without a qualification but a large debt".

CSU Pro Vice-Chancellor for Learning and Teaching, Professor Janelle Wheat, said the proposal would affect 0.6 per cent of the university's students who have studied eight or more subjects.

"This will not create a barrier for students studying at Charles Sturt in Wagga as we have best-practice procedures in place for tracking and supporting students who have low completion rates," she said.

"These policies will be further enhanced in 2021 when a new Academic Progress Procedure takes effect that enables even greater monitoring and management of students' academic progress.

"The university's main consideration in this regard is ensuring students are supported to succeed, or their enrolment is managed appropriately where additional support is required."

The National Union of Students and National Tertiary Education Union have both criticised the proposal as a fear-based incentive.

Riverina MP Michael McCormack said the government did not want students "being left with a large debt and no qualification to show for it".

"Universities will have the power to use their common sense if a student's studies have been impacted by factors outside their control, like ill health, or a bereavement," he said.

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Mr McCormack said the changes would also bring new measures worth an additional $400 million to support regional students and universities, including $5000 for school-leavers from outer regional or remote areas who relocate more than 90 minutes from home to study.

The $5000 payments have been opposed by one of Mr McCormack's fellow Nationals MPs, who claimed it would encourage rural students to apply for capital city universities over regional institutions.

Labor Senator Deborah O'Neill said she did not understand why the changes were being proposed during a recession.

"We all know that year 11 and 12 students are struggling to get through their HSC due to the massive disruption of COVID-19, so why would McCormack and his government be so determined to make it harder for them in their first year of uni?" she said.