Students from Wales can now claim up to £1,500 help
Education Minister Jane Davidson wants to stop Wales's 13 higher education institutions offering identical courses.
Instead, her 'The Learning Country' document calls on college departments to co-operate more closely by 2010, creating diversity and offering specialisms.
She is also lifting caps on the number of students at Welsh universities and encouraging the institutions to compete for students.
They are facing challenges from new education sectors including internet degrees and global competitors.
The assembly wants them to remain competitive by carving out more defined niches.
But opposition AMs have expressed reservations about the plans, claiming they are bad news for smaller colleges.
Thursday morning, Ms Davidson pledged £3m to help the universities's structural reconfiguration by developing centres of excellence.
But she is leaving the detail of planned reforms - which she wants to hear in the next financial year - up to individual institutions.
The federal University of Wales has already appointed former Cambridge Vice Chancellor Sir David Williams to report on possible configurations, amid continuing speculation its six constituents could break up.
Learning plans
The student numbers cap is being lifted in line with UK Government policy.
Presenting the 10-year strategy - developed by the assembly education committee over 15 months - Ms Davidson said: the sector cannot face that challenge as it is currently structured.
"Reconfiguration is central to promoting the excellence that we seek - small institutions currently carry disproportionate overhead costs.
"Similarly, if institutions are to compete for research funds, contracts and students, then they must concentrate effort and focus on excellence."
She said the future for Welsh higher education lay not in the "wasteful duplication of excellence" by the existing 13 institutions.
Effectively, the minister is calling on the colleges and universities themselves to deliver:
The assembly is also giving those organisations another £2m to spearhead intiatives attracting people without a history in higher education.
And Ms Davidson insisted she "will not offer incentives for average performance."
But Plaid Cymru has said the drive to collaboration will threaten, not help, small colleges and have called for a debate on the issue. The assembly has already made £9.6m available to the higher education sector, including a £6m for academic excellence.
In February, student grants were reintroduced by the assembly cabinet in a move which has put pressure on the Westminster government to follow suit.