Victoria University says under-funding by successive governments is limiting student numbers and creating challenging financial times for the tertiary sector.
In the university's financial report vice-chancellor Pat Walsh said its 2010 budget balanced the "need to manage the university carefully through a challenging financial period while also investing in resources to focus on the university's strategic initiative".
The university must also considered how best to manage student levels due to the "capped funding environment", he said.
"Because universities are now funded only for a certain number of students each year - and not beyond this number - we needed to consider how to manage the limited number of student places in a fair and open manner."
Successive governments had left the sector under-funded and National Government's 2009 budget signalled "further cuts to the funding of tertiary education," Prof Walsh said.
Tertiary Education Minister Steven Joyce said the Government's 2010 budget, released last week, would "reform" the student support system and create more places in universities.
The budget allocated $4.2 billion to purchase 1735 full time places at universities and 3173 extra places at polytechnics.
Mr Joyce said the budget also provided a higher tuition subsidy per student and replaced the fee maxima with an annual maximum fee movement -- 4 percent in 2011.
"The tertiary sector already gets its fair share of government spending compared to other countries.
"That means we have to look at what we have and make it work better," he said.
NZPA