Paula Bennett says if Kiwis in Australia want to enjoy the same benefits as Australians, they should join them and become citizens.
Australia's government announced earlier this week Kiwi students won't received subsidised university fees from next year.
It's part of an AU$2.8 billion education spending cut that'll push fees for Kiwis from about AU$7000 a year to more than AU$25,000.
The Deputy Prime Minister told The AM Show on Friday the Government wasn't going to put up a fight, because they're "realists" and know they won't win.
"If you don't want to be a New Zealander, you want to be in Australia and get all the benefits of being there, become an Australian citizen," Ms Bennett said.
"There is a pathway to that, even though it's not easy."
Labour deputy leader Jacinda Ardern, also appearing on The AM Show, said it's "not fair" because Australian students will still be treated as domestic here.
But Labour has no plans to go tit-for-tat and make Australians studying in New Zealand pay the same fees as other international students.
"We lose moral ground there. If we're fighting for students in Australia, we should hold our ground. It should be about being treated equitably. As soon as you move on them, you lose the moral ground."
Ms Bennett said thousands of Kiwis study in Australia while only a "few hundred" Australians study here, so it was fair for Australia to rethink its policy.
"It's easy to sit there on that moral high ground of being outraged and all that sort of thing. You've got to deal with the realities of what they are when you're in Government."
Foreign Minister Gerry Brownlee held a joint conference with his Australian counterpart on Thursday, saying they'll work together to try and avoid surprise announcements which affect the other nation's citizens.