The Government has signalled it will cut the support it provides to tertiary students and reinvest that money in universities.
Students at universities and other tertiary institutions will bear the brunt of cuts within education, with the Government planning to reduce allowances and require students to repay their loans faster.
However, overall spending on education will still rise in the Budget and student loans will also remain interest-free.
Making cuts to student entitlements was the centrepiece of the Prime Minister's pre-Budget speech to Business New Zealand in Wellington on Tuesday.
John Key says people with student loans - who now pay back 10 cents for each dollar they earn - will have to pay them back faster and this will save the Government tens of millions of dollars a year.
Tertiary Education Minister Steven Joyce also announced cuts to the student allowance scheme on Tuesday.
The Government says its spending on student allowances has increased from $385 million in 2007-08 to $620 million in the 2010-11 financial year.
Mr Joyce says the Government has to curb the student allowance costs and it is looking to make sure the allowances are targeted at those in the early years of study and to those that can least afford it.
"We can't keep sustaining those sorts of increases so we are looking at future changes. (We'll) have more to say on that some time between now and (the) Budget."
Earlier this year, the Government announced there would be no increase to the student allowance parental income threshold in 2012.
The Budget will be delivered on 24 May.
Cuts counter-productive, says union
The union representing tertiary students says the Government's planned cuts to student allowances will be counter-productive.
Union of Students Associations president Pete Hodkinson told Radio New Zealand's Checkpoint programme if student allowances are reduced, it will lead to less people taking up study.
"If they don't get the student allowances, then they have to borrow to live. And if that loan is not available through student allowances, then it turns into a private loan.
"So realistically, it's just transferring one lot of debt into another lot of private debt - with higher interest."
The Labour Party warns against changes made to tertiary education funding, saying it could affect low income students.
Tertiary education spokesperson Grant Robertson believes there will be big changes for students and their families in the Budget.
"Student allowances are in place because people from families with low incomes do need more support to go into tertiary education. I think there is a massive risk of cutting off the potential of some people from low income backgrounds if student allowances are taken away."
Mr Robertson says changes to student allowances is likely to persuade more graduates to leave New Zealand.
The Green Party's Holly Walker says the changes will make it more difficult for people to go to university.