EDUCATION Minister Christopher Pyne is looking to the United States' model as he reforms the Australian university sector to compete in the global market.
Australia has 19 universities in the world's top 500 while the United States has 149, China has 28 and the UK has 37.
Mr Pyne told a Policy Exchange education forum in London that Australia had much to learn from the US, which had made going to undergraduate college a "rite of passage".
"We are at risk of being left behind, we need a renewed ambition and it must be bold," Mr Pyne said.
The US has a system of teaching-only undergraduate colleges offering only Bachelor degrees.
These colleges are saved the expense of research programs or higher degree courses.
In 2012, the Gillard Labor government allowed universities to determine how many federally funded undergraduate degree places they would offer, doing away with the system of capping places.
The change has seen undergraduate places expand to 577,000.
An Abbott government review of the changes by experts David Kemp and Andrew Norton recommended extending the system to diplomas, advanced diplomas and associate degrees.
As well, the report urged that government support be extended to private universities, TAFE colleges and some private educational institutions.
Mr Pyne said while he would not pre-empt changes in the May federal budget, he would be pushing for further deregulation of the education market.
"The (review) recommendations with respect to expanding the demand-driven system to diplomas and extending the commonwealth grants scheme to students of all higher education providers have much to recommend them," Mr Pyne said.
He said Australian universities faced growing competition from overseas-based online providers.
"Our answer will be, above all, to set our universities free," he said.
"The challenges of which I speak call for diversity in our institutions, for flexibility, quality and innovation in domestic and global education."
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