Big changes to funding for tertiary certificates and diplomas are being labelled unfair and short-sighted.

The government has unveiled new funding rates that boost payments for work-based learning enrolments but slash those for distance education and significantly reduce those for traditional face-to-face courses.

Tertiary institutes would get $1233 for each student with disabilities or with no prior education, and funding for workplace learning would increase significantly.

Quality Tertiary Institutions executive director Tommy Honey said the new system worked in favour of the new national polytechnic, Te Pukenga, and against the private sector.

"PTEs really put our best foot forward but we can only do that if everything's fair and for once we're really starting to wonder if this is fair or not," he said.

"There are 160 private training establishments that get this kind of funding support from the government and they've already identified that I think its 49 of them are going to lose more than 10 percent of their funding and of those, for a lot of them that's more than $100,000 but for eight or nine of them it's more than half-a-million-dollars," he said.

Independent Tertiary Education New Zealand director Wayne Dyer said some private providers could go out of business.

He said the private sector needed more time to transition to the new system.

The new system is part of the government's reform of vocational education and training, which created Te Pukenga, the national polytechnic and workplace training organisation.

Its chief executive, Stephen Town said the new funding system would deliver different funding outcomes for each of its delivery modes - on-campus, work-based, and distance/online learning.

He said it was still calculating the impact of the new system, but overall it should be better off.

"There is in total a solid increase into Te Pukenga's component parts which means the pathway to viability looks much more positive than it did a couple of weeks ago before we had these really welcome Budget announcements," he said.

Tertiary Education Union president Tina Smith said 85 percent of funding under the new system would be linked to student numbers, so polytechnic finances would see-saw as enrolments changed.

"That means that with any ups and downs with student numbers such as at the moment when we have low unemployment, the numbers will continue to fluctuate and that's not good for continuity of education," she said.

She said cutting funding for enrolments in distance courses to $4881 in all subjects except te reo Maori was short-sighted.

"Extra-mural programmes meet a need for many students and I think they haven't understood that those programmes do have lower success because people learn best face-to-face but there's still a need for extra-mural courses. I think they're being unfairly penalised."

News of the new funding rate comes just as the Open Polytechnic reported a 29 percent jump in enrolments, making it the single biggest polytechnic in the country.

The president of its branch of the Tertiary Education Union, Mary-Liz Broadley, said staff were worried what would happen.

"If you have a cut in funding, does funding relate to quality? Well that's the big question isn't it. In the long term that will be what may be in jeopardy and I don't know that we want to jeopardise 35,612 learners," she said.

But the institute's chief executive Caroline Seelig was more optimistic.

She said though the funding rate for sub-degree distance provision was dropping, there would be a new $22 million development fund and increased funding for under-served learners.

"Open Polytechnic makes a large investment in course development and enrols large numbers of Akonga Maori, Pacific and disabled learners," Dr Seelig said.

"It's also likely that the new funding regime will encourage greater consolidation of distance learning provision. So it remains to be seen exactly how all this plays out within the new Te Pukenga environment next year."

The funding rate changes applied only to courses below the level of a Bachelors degree and were expected to increase funding to wananga and slightly decrease funding to universities.