Polytechnics in the main centres say they could do a better job if the Government gave them control of their students' loans and allowances, and let them distribute the money as they see fit.
They say the change would protect the Government from loan and allowance blow-outs if student enrolments rise and would allow the polytechnics to support the most needy students.
The polytechnics - in Auckland, Hamilton, Wellington, Christchurch and Dunedin - say they could do their job better if the Government bulk funded them with their usual subsidies as well as a predetermined sum to cover students' loans and allowances.
That would protect the Government from loan and allowance blow-outs if student enrolments rise, but it would also leave students' entitlements in the hands of the polytechnics.
The group says that would allow the polytechnics to better support the most needy students.
But it acknowledges some students would get less support and face higher fees.
Tertiary Education Minister Steven Joyce says the suggestion is interesting and the Tertiary Education Union says it can see merit in the idea.
The Union of Students Associations disagrees.