Universities say fees-free is a 'middle-class subsidy' for those who would have gone to uni anyway.

The Tertiary Education Commission has found a third of the tertiary students doing new fees-free courses, failed or dropped out of at least one paper last year.

The Ministry of Education data revealed yesterday shows that, at an average of $2800 a course, 2018's unsuccessful papers could cost the taxpayer as much as $40 million.

However the rate is lower than the year before - when 37 per cent dropped out or were stamped with Fs.

That's a trend welcomed by the Education Minister Chris Hipkins, who says it'll take more time before reasons are established for the high numbers.

Universities New Zealand executive director Chris Whelan told Mike Hosking the scheme failed to attract many people outside of their usual demographic.

"People that are going to university are more likely to be those who can afford it in the first place, and the analysis that says it is largely a middle class subsidy, does have elements of truth to it."

However, he says the latest figures for the fees-free scheme don't tell the whole story and the figure is misleading.

"We need to be careful here as these are people who have changed courses or in some cases failed a course or dropped out of it, not necessarily people who have dropped out of university."

Whelan says a small percentage of drop outs is expected.

"We lose about nine or 10 per cent in first year. A lot of the time it's just people going 'This isn't the course I wanted to do. I thought I wanted to be an accountant and actually I don't'."

National's tertiary education spokesperson Shane Reti says fees-free students may not care as much about passing because they have less skin in the game.