The Conservatives are promising to scrap student tuition fees and limit the increase in university places.
Students have cautiously welcomed the proposals to scrap fees
Party leader, Iain Duncan Smith, outlined the policy in a keynote speech presenting his party's strategy for a return to power.
Students welcomed the fees announcement - and say that this leaves the government isolated in its support of tuition fees.
But the higher education minister warned that scrapping fees would mean 100,000 fewer students and 6,500 university lecturers.
University chiefs have also warned that the proposals would lead to budget cuts, when higher education is already underfunded. And university lecturers say the plans would lead to course closures.
Mr Duncan Smith has attacked tuition fees, which will rise to £3,000 per year, as a "tax on learning" which he would remove if elected.
The Conservatives say they will also get rid of the government's target that at least 50% of young people should go to university.
The new admissions regulator being introduced by the government, the Office for Fair Access (Offa) would also be abolished.
The party says getting rid of tuition fees would save students and their families up to £3,000 a year.
They say that the loss of revenue would be £700m, but the Conservatves argue that by not increasing university places, as the government plans, it would save £485m.
Scrapping Offa and other measures would, they claim could save more than £200m.
Mr Duncan Smith told his audience at the University of London: "We will scrap university tuition fees - a tax on learning. The fees have penalised hard-working families who simply want their children to get on.
"We will make the university sector better focused and will provide places to all who will benefit from them, on the basis of their merit and their potential, regardless of their background, regardless of their means."
The National Union of Students welcomed the proposals, saying that "abolishing tuition fees removes a financial barrier that deters many from going to university and that can only be a good thing".
But Universities UK, representing vice-chancellors, claimed that the proposals would "deprive universities of a much-needed source of funding to relieve middle-class students from paying fees".
There have also been claims that cutting fees and reducing places will mean cuts in the higher education sector.
Higher Education Minister Margaret Hodge said: "The Tories have demonstrated yet again that they have a complete lack of understanding of the funding crisis that universities currently
"Universities currently get half a billion pounds in income from fees, which
are only charged to those who can afford to pay. Abolishing all tuition fees will mean immediate terrible cuts in student
Liberal Democrat education spokesman Phil Willis dubbed the policy a "gimmick" and claimed the figures did not add up. "The Tory approach to tuition fees comes at a price, less young people in our
universities," he said.
The Association of University Teachers, representing lecturers, said that the funding proposals were "ill-thought out".
"Our initial analysis shows that the Tories' proposals would lead to a contraction of higher education, staff redundancies and course closures. This is an eventuality we would strongly oppose," said assistant general secretary Paul Cottrell.
"I can't believe that at the very moment the rest of the country has accepted the need for increased investment in our universities, the Tories are proposing cuts. Reducing the number of courses, staff and universities would be a catastrophe."