The decile system, which is currently used to decide school funding, is to be scrapped, with an alternative called the 'Predictive Risk Index' lined up to replace it.
It will track individual at-risk students and then use that information to target funding directly to schools.
Under the decile system, schools are ranked from one to 10 based on the socio-economic status of their communities, which determines funding.
But under the Predictive Risk Index, individual students are deemed "at risk" after being assessed by Government data and a school's funding is based on the number of students it has with risk factors.
"This is very much going to be a much more specific approach than the decile funding allows," Education Minister Hekia Parata told Newshub.
The Government will use its pool of data to identify students from families on a benefit, with brothers or sisters who have been victims of abuse, or parents that have been in prison.
But privacy has sprung out as an obvious concern.
"The technology is there, and there is no intention to identify - in fact we will ensure that children aren't identified, that their privacy is protected," Ms Parata said.
The Primary School Teachers Union is worried it could shift the stigma from schools onto students.
"In the past we've had stigmatising of low decile schools, will that mean that individual children will be stigmatised?" NZ Educational Institute President Lynda Stuart told Newshub.
Another concern is that while some schools could gain funding, others will lose it.
"I certainly think that some schools could be at risk of losing funding," Ms Stuart said.
Ms Parata said whether schools could lose funding is something "for the future" - but her political future is limited as she retires as Minister in three weeks.
Her goal is to get this signed off as her last project.