The Government will cut student allowance and loan spending by $29.6 million by introducing further clamp downs on eligibility.
Last year the Government announced post-graduation students would not be eligible for student allowance, which sparked outrage and large student protests across the country.
In Budget 2013, the Government will furtherrein in student allowances by removing eligibility for those aged 65 and over from the beginning of next year.
The lifetime limit for student allowance eligibility for those aged 40 and over will be reduced from 200 weeks to 120 weeks from next year. This means they will only be able to study for three years.
The student loan and allowance stand-down period for permanent residents will be increased from two years to three years from next year.
Minister of Tertiary Education, Skills and Employment Steven Joyce said "big increases" in student allowance spending by the previous government - increasing from $385 million in 2007/08 to $649 million in 2011/12 - was not sustainable and forced the Government to further rein in those expenses.
"The changes we have made in Budget 2012 and 2013 will reduce that cost back to a projected $528 million annually be 2016/17."
He said money saved from cuts to student loans and allowances would be invested in science and innovation.
