Labour has barred Australians from fees-free study, unless they have lived in New Zealand for three years.
Australians and New Zealanders are mutually considered domestic students, meaning both pay lower fees than international students when they cross the ditch.
Labour needed to either allow Australians access to the fees-free policy or find a way to exclude them.
It's gone for the latter.
The three-year residency requirement is what Australians currently need to meet in order to access other forms of student support provided by the New Zealand Government - interest-free loans and student allowances.
Education Minister Chris Hipkins told Newshub Australians who have lived in New Zealand for less than three years will pay domestic fees.
"Any Australians wanting to take up fees-free tertiary study will need to meet the three-year residence requirement that currently applies to accessing interest-free student loans and student allowances. This will also apply to other residents from different countries."
Australians who have been ordinarily resident in New Zealand for less than three years will continue to pay domestic fees.
Mr Hipkins first mentioned the three-year requirement during Question Time on November 9.
National's Paul Goldsmith says it's a back down.
"No one would agree it's a priority for New Zealanders to pay for Australians to come here and get free tertiary study.
"We agree with the idea of a three-year stand down, however, this will mean a change to the current agreement we have with Australia and that will need to be carefully managed," Mr Goldsmith told Newshub.
"The Government has done a poor job of managing our relationship with Australia, and we're concerned that their handling of this will put further strain on the relationship."
Labour plans to roll out the fees-free policy over several years, culminating in three-free years from 2024.