Kiwis in Australia won't be forced to pay more for university after controversial legislation was scrapped.

Prime Minister Jacinda Ardern threatened during the election campaign to retaliate if Australia proceeded with the higher education changes that would have scrapped subsidies available to New Zealand students.

That legislation, which was introduced after the budget earlier this year, had stalled in the Senate after failing to find majority support.

It was redesigned for a third time on Monday during the government's Mid Year Fiscal and Economic Update and now instead includes a plan to freeze per-student funding at 2017 levels for two years and impose a lifetime limit on government student loans.

Ardern said on Monday that she'd received an indication from Prime Minister Malcolm Turnbull that the parts affecting Kiwi students had been removed.

"Regardless of what has finally led to that final outcome it's certainly quite pleasing from this government's perspective that we will see New Zealand students in Australia continue to be able to access tertiary education over there in the same way they have in the past," she said.

New Zealand students will continue to be treated as domestic students and remain eligible for government-subsidised course fees, allowing them to avoid paying much higher international student rates.

Australian students will not, however, be granted the same immediate reciprocal rights when it comes to the government's plans for three years of free university education.

That requires Australians, and Kiwi citizens, to have lived in New Zealand for at least three years beforehand.

The first year free kicks in from next year, increasing to the full three years by 2024.

- NZ Newswire