The country's largest polytechnic, Auckland's Unitec, is axing jobs in student services and contracting them out to a private multinational.
At the same time, it is putting more than 100 academic management positions on the line.
The cuts confirmed today are the first of up to 300 jobs set to go in the next three years.
Unitec staff learned this afternoon that an intial 87 jobs in total would go, including 55 people who worked in student support services - predominantly enrolment.
Their jobs are going to multinational company Concentrix, which already runs a call centre on Unitec's Mount Albert Campus in association with IBM.
Unitec chief executive Rick Ede said the changes were the first stage in a $250 million redesign of the institution to give students more flexible study options and make them more employable.
"Now it so happens that this is also a model that is more efficient than what we're able to do at the moment.
"And this enables us to invest in better quality services and better quality facilities, again for the benefit of our students."
Academic managers, including heads of department and deans, are also being restructured as Unitec ditches traditional faculties and departments and replaces them with eight so-called "networks" aligned with industry sectors.
This meant 32 people were being made redundant but 52 new positions would be created.
Another 138 roles would be disestablished but the people in them would retain their original positions, usually in teaching.
Dr Ede said the announcement was "timely" with the government's announcement this week that it had asked the Productivity Commission to review tertiary education and how it should be delivered and funded.
However, the Tertiary Education Union said it was "disappointed" that Unitec had ignored feedback from academics and support staff that the changes were going to make their jobs more difficult and harm students.
Union president Sandra Grey said the only way Concentrix could do the job cheaper was by using a casualised workforce.
"So basically they're going to turn really good jobs employing very good people holding those positions into very casual, zero-hours type contracts.
"But we don't really know how they can do it cheaper. That's just inferred from what they've already done."
Ms Grey said public money should stay in public institutions that were publicly accountable.
The proliferation of private training organisations, which were cherry-picking the easy courses, had left polytechnics struggling with falling rolls and high costs, she said.
"A lot of this is being brought about by a government that actually says the tertiary education sector is not productive enough and has refused to put any more money in.
"In fact the polytechnic sector has lost a significant amount of money in real dollar terms."
The Union of Students' Associations was also against the plan.
President Rory McCourt said Unitec was taking a risky gamble and it was students who would suffer.
"It's going to mean that student services are privatised - they're going to be put into the hands of a private company to make profit off the students.
"And there's a real risk that when companies go belly up, they leave students high and dry and we don't have the quality of student services of having people in there year after year and really supporting students in the long haul."
Unitec said the Concentrix takeover would start immediately with the new-look student services going live at the beginning of April next year, while the academic management makeover would be in place by May.