Polytechnics are warning that the Government's decision to open millions of dollars of their funding to competition from the private sector could be the death knell for some institutions.
The Government is putting $40 million of the $115 million it spends on tertiary education subsidies for levels 1 and 2 courses out for tender.
The subsidies now go almost entirely to polytechnics and Te Wananga o Aotearoa to pay for very basic courses that provide foundation-level employment and study skills.
Polytechnic leaders warn that the institutes with a lot of low level courses could go under if they lose their share of the funding.
Institutes of Technology and Polytechnics chairman James Buwalda says the tender process should reward organisations that can offer high quality courses.
"There is a risk that if we put too much emphasis on price, we could get a race to the bottom."
Mr Buwalda says the future of some polytechnics will be at risk if they lose a lot of funding.
The Tertiary Education Union says the government is making a mistake in opening the funding to competitive tender.
The tender is open to private businesses and the union says it will lead to cost-cutting that will compromise the quality of courses.
The union's polytechnic sector vice-president Richard Draper says the tender will force institutions into a price war they cannot afford.
Mr Draper says the money should remain with public institutions that can help students move on to higher levels of study.