Most of the recommendations – such as charging people $15 per GP visit or scrapping family tax benefits – were judged politically unpalatable and were binned or watered down.

In one policy area, however, the Abbott government went further and faster than the audit commission recommended: higher education.

The commission recommended that the education minister develop options for a full or partial deregulation of university fees, with a preferred option to be finalised in 12 months. Care should be taken because higher fees could end up costing rather than saving the budget money, the report warned.

Yet on Budget night the government announced a full deregulation of tertiary fees. The government would also cut university course funding by 20 per cent and apply a real interest rate to student debts for the first time.

Because it was a budget measure, there was no public consultation for the most sweeping changes to higher education in 25 years. The general public was caught by surprise: universities barely rated a mention in the 2013 election campaign.

Fast forward eight months to today. University vice chancellors – bruised by cuts handed down by both sides of politics – have mostly embraced fee deregulation as a way to raise their revenues. But the government is still battling to ram its changes through a recalcitrant Senate.

Facing a self-imposed deadline of March to pass reform, Education Minister Christopher Pyne remains as energetic as ever. Last week he lobbied Clive Palmer over dumplings and fried rice; this week he skipped Cabinet to learn blacksmithing with Victorian Senator John Madigan.

But the signs are not good.

The government needs the support of six of the eight Senate crossbenchers to pass its amended bill, which would retain the current interest rate arrangements for student debts. Independent Senator Jacqui Lambie and the Palmer United Party's Glenn Lazarus have been vociferous in their opposition. Motoring Enthusiast Party Senator Ricky Muir has co-sponsored a Senate inquiry exploring alternatives to fee deregulation. And independent senator Nick Xenophon has called for a comprehensive, year-long review of higher education funding – essentially a return to the audit commission's initial recommendation.

The end, as TS Eliot wrote, is to arrive where we started.

"The whole process has suffered from a lack of preparation," says Andrew Norton, the Grattan Institute's higher education program director and a former Coalition policy adviser.

"I believe the only way to persuade people to support fee deregulation is to make the case that it will lead to a better education for students. Neither the government nor the universities have done a good job of that.

"It looks like the package will fail."

Yet a deeper truth remains: Australia's system for funding higher education is crying out for reform. After Labor uncapped university places in 2012, annual course funding has blown out from $3 billion to almost $7 billion – a figure that will continue to grow. The average university class size has doubled since 1990, meaning a less personalised learning experience for students.

Even crossbenchers opposed to fee deregulation and the Labor opposition agree the status quo is not an option.

So how to break through the logjam?

Peter Dawkins, the vice-chancellor of Victoria University, has called for a "third way" on university reform between the two extremes of full fee deregulation and tight government control.

The government, Dawkins says, needs to "move much more into the middle ground and take a more moderate approach".

Dawkins wants the government to consider compromise options including:

• retaining caps on university fees but increasing the amount universities can charge students;
• introducing a cap on the loans students can take from the federal government; 
• creating a specialist regulator to monitor fees (rather than the Australian Competition and Consumer Commission, as proposed by the government) or
• requiring universities to pay a levy to the government if they increase fees over a threshold amount.

The last idea was discussed at length at an off-the-record policy forum at the University of Canberra last week. It has won the support of economist Bruce Chapman, the architect of the HECS repayment system, and leading higher education consultant David Phillips. While allowing universities more flexibility over pricing, they say a levy would discourage dramatic fee hikes.

"If you go down the fee deregulation route, you need to have some form of price constraint," says Phillips, a former adviser to the Hawke government. "Higher education is not a normal market – you need policy mechanisms in place to put downward pressure on fees."

As well as taxing universities that charge high fees, Phillips offers an even more controversial idea. He wants the government to re-regulate the current system that funds universities for as many students as they can enrol.

He says funding should only be guaranteed for students deemed likely to succeed at university when judged against set criteria. (This would include their tertiary entrance score, year-12 completion and any pre-existing vocational or sub-bachelor qualifications).

Funding for "at risk" students would be centrally controlled and only given to universities with a track record of supporting them through their studies.

This would save the government money and reduce drop-out rates, Phillips says.

Studies have found that only around half of students who enter university with an ATAR under 60 complete their degree, compared to 90 per cent of students in the the top ATAR range.

Andrew Norton warns that rushing into a plan B would simply repeat the flawed policy process seen with full-fee deregulation. "The ideas out there aren't much more developed than points on a Powerpoint slide," he says. The government only had so much political capital to burn, he added, and the Senate remained unwieldy.

Pessimistic university leaders fear that reform fatigue will soon set in. A golden opportunity to make Australia's higher education more vibrant and sustainable would be lost.

Optimists hope this is the end of the beginning, not the beginning of the end.

"We need action," says Victoria University's Dawkins. "We can't afford to let this drift."