Education Minister Brendan Nelson is defending a university funding plan that links $251 million in funding with student skills tests and graduates' job success rates.
The plan - which determines funding based on measures such as student attrition rates, student satisfaction with courses, and how many graduates find a job - was announced in April.
It has been criticised by the Australian Vice-Chancellors' Committee (AVCC), which argues universities could be forced to only choose students considered most likely to get a job.
Confidential AVCC board papers also argue against the graduate skills assessment tests being used as a performance indicator, according to The Australian newspaper.
Dr Nelson said he also supported student skills tests, so employers would know how ready they were to enter the workforce.
He said the tests were needed because employers were concerned that while graduates might have a degree, they might lack the commonsense needed for the workplace.
"So we are saying to universities we want to make sure that you have a high proportion of students that undertake and do this test and what I want to see is employers actually asking for it," Dr Nelson told AAP.
"Now when employers start asking for it then we want to create an environment where it's part of the normal process of going through university."
Six thousand students have already voluntarily completed the test, which examines critical thinking, problem solving, interpersonal relations and written communication.
Labor's education spokeswoman Jenny Macklin said the skills test should be more widespread.
"We want to make sure that university graduates are, of course, able to go into the workforce and provide their skills where they're much needed," she said.
"But I think it's time the Howard government listened to the universities and took the advice about the value of making this skills test more widespread."
Ms Macklin also described as alarming estimates by the architect of the Higher Education Contribution Scheme (HECS), Bruce Chapman, that one in 10 Australian university students will be paying full fees of up to $200,000 by 2008.
"So basically what this ... shows is that unless your parents are either very rich or very generous you won't be able to get in to medicine, dentistry, veterinary science - all the courses that cost a very large amount of money," she told reporters.
Prof Chapman estimates the number of domestic university students paying full fees will increase five-fold in four years, partly because of the government's introduction of the FEE-HELP loan scheme, which is capped at $50,000.
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