All New Zealanders who have done less than half a fulltime year of post-school education or training will be eligible to study fees-free from next year.
From 2021 those starting tertiary education would get two years free, and from 2024 three years.
The Cabinet paper notes risks, particularly because the scheme is being rushed in to be ready by next year.
Universities and other tertiary and training providers will need to get to grips with the new system over their busiest period, when thousands of students are enrolled in courses and classes.
This may result in confusion about eligibility, and increase the risk of gaming by providers and students, the Cabinet paper notes.
Providers gaming the system could include the bringing forward 2019 course dates, and students could defer the start of their study to claim an extra year fees-free.
"Education agencies are working to minimise these risks. The Tertiary Education Commission will use existing monitoring and audit processes and will employ new information and resources to enhance monitoring," the Cabinet paper states.
Other risks include employers directing employees to use the fees-free entitlement for training they should pay for, and the chance that students may be less motivated, given they aren't paying for their course.
Mitigation includes the fact fees-free study will be withdrawn from students failing too many of their papers, and the fact universities and other providers will be motivated to keep pass rates up.
Tempers flared at the education select committee this morning as Education Minister Hipkins crossed swords with National's education spokeswoman Nikki Kaye and tertiary education spokesman Paul Goldsmith over the policy.
Hipkins said eligibility would be easy to check for school leavers, but about half of the 74,000 applicants - including refugees and overseas-born students - would have to sign a statutory declaration saying that they met the requirements.
Goldsmith said it was a lot of money at stake - $2.8 billion over four years - with "up to 50 per cent [of participants] based essentially on an honesty system".
Kaye went further: "It's an audit system and you're not going to audit everyone. There is a high likelihood that there are hundreds of thousands, if not millions, of dollars potentially spent on people who are ineligible. And you'll never know."
Hipkins said there were a number of Government processes that relied on statutory declarations - not just education.
"No Government can ever prevent people from lying when they do a statutory declaration ... We do have to rely on people being honest. I'm pretty confident we will get our systems right and that people will be caught if they are ripping off the system."
