Tertiary courses with pass rates below 30% could lose their funding at the end of the year.
The Tertiary Education Commission is targeting such courses when it discusses next year's funding agreements with tertiary institutions.
A commission spokesperson says it could remove funding if institutions do not have plans for improving low pass rates.
The move is part of government efforts to shift funding from low-value to high-value courses.
But the chairman of New Zealand Institutes of Technology and Polytechnics, James Buwalda, says the commission should be flexible when it addresses low pass rates.
He says students seeking second-chance education can benefit from courses even if they do not pass; and in courses with low enrolments, he says, just a few failures can push a course below the 30% threshold.