Labour education spokesperson Chris Hipkins said putting interest back on student loans would just create more inequality, particularly in access to further education.
"If that's the only answer that people can come up with for funding changes in the tertiary education system, then they need to think more creatively than that."
Green Party tertiary education spokesperson Gareth Hughes is also outraged at the suggestion, saying it's already hard enough to pay back a loan on the average salary.
"I think it's outrageous, it's ridiculous," he said. "We already know that the student loan debt burden has ballooned to $15 billion."
The draft report also includes recommendations for a switch to a voucher-type funding model.
Hipkins is blasting that as deregulation and privatisation in disguise. He said the sector does need to become more flexible, but not like this.
"The model that the Productivity Commission have proposed is going to reinforce the problems that they've identified, rather than fix them."
The call is also getting a thumbs down from the Greens, with Hughes saying it wouldn't fix the issues in the sector.
"I think we want to see an innovative system, but we don't want to just bandy about the word 'innovation' for innovation's sake. We need to keep our eye on the prize, which is tertiary education is a public good."
Also among the recommendations, the report noted that there is strong quality control, everywhere but quality of teaching.
Joyce said that has caught his attention.
"But I think in terms of really big changes, I think you'd have a pretty high bar for that given what is actually a well performing system relative to the rest of the world right now."
