Reforms to the university sector have been introduced in a bid to help more students from disadvantaged backgrounds to graduate.
The first tranche of measures outlined in the Universities Accord interim report were brought to parliament on Thursday, amid an overhaul of the sector.
The laws would see a 50 per cent pass rule, which was previously introduced as part of the Job-Ready Graduate scheme, being abolished.
Under the rule, students who failed more than half of their subjects would no longer be eligible for Commonwealth funding.
Education Minister Jason Clare said those from disadvantaged backgrounds needed to be better supported through their university career.
"(The rule) has seen a disproportionate number of students from poor backgrounds being forced to leave university," he told parliament on Thursday.
"We should be helping students to succeed, not forcing them to quit."
In the past two years, more than 13,000 students have lost their funding for university because of the rule.
Under the laws, universities will be required to have support plans in place for students at risk of falling behind.
Universities will face new fines if they fail to meet the guidelines
Mr Clare said the accord - a landmark review of the sector - examined how study rates could be boosted for people from disadvantaged backgrounds.
"If we don't significantly boost the number of students from the outer suburbs and the regions and other under-represented groups at university we won't have the skills we need," he said.
"The only way to significantly boost the percentage of the workforce with a university qualification is to significantly increase the number of students who are currently under-represented."
The laws will also deliver changes to funding for Indigenous students at university.
Mr Clare said demand-driven funding currently applied only to Indigenous students in regional areas and not major cities.
He said he was confident the changes could double the number of students within the next decade.
"Demand-driven places for bachelor-level courses, excluding medicine, will now be available to all Indigenous students wherever they live," Mr Clare said.
The Universities Accord panel is examining more than 70 policy ideas on changes to the sector.
The final report will be handed down later this year.
