A shake-up of how universities are funded is being considered by the higher education minister - which could pave the way for higher tuition fees.
Dr Stephen Farry is preparing to launch a `conversation' about higher education finances, saying the sector is underfunded compared to England by £48m a year.
The status quo maintained over the last Programme for Government "is no longer tenable", the Alliance minister warned, saying it has already led to cuts in students and staff.
In England, caps on places have been lifted and institutions can charge students up to £9,000 a year, meaning they are not as reliant on government grants.
Tuition fees for the next two years in the north will be £3,805 and £3,925 per annum. Strict caps on student numbers also remain in place.
Fee levels have been creeping up - The Irish News revealed earlier this year that the Executive broke one of its own key commitments by allowing an increase of three times the rate of inflation.
Student leaders argue there should be no fee increase and instead urge a system of free higher education.
The Department for Employment and Learning's (DEL) budget has been reduced by £62m this year, and higher education funding has fallen from from £203m to £186m.
The cuts have led the Ulster University and Queen's to announce staff and student cuts.
Dr Farry revealed that over the next three years, 2,200 undergraduate places will be lost - out of a total of about 27,000 in the north.
The minister was responding to an assembly question from the Green Party's Steven Agnew.
Mr Agnew asked whether more funding was required for higher education, and whether making it free would help widen participation to meet the skill needs of businesses.
Universities are funded through public money - mainly DEL block grants - and private contributions in the form of tuition fees.
Government funding accounts for 37 per cent of the sector's income in the north.
However, grant funding makes up only 18 per cent of the budget of institutions in England and Wales. There, public funding has been largely replaced with higher tuition fees.
"As a result of our institutions' reliance on government funding, reducing Executive budgets will significantly impact on the financial sustainability of the sector," Dr Farry said.
"Northern Ireland’s higher education sector is already underfunded in comparison to the sector in England to the tune of £48m per annum (teaching and research funding).
"A £16m reduction as a result of the 2015/16 budget will directly impact student and staff places. In this incoming academic year there will be 540 fewer undergraduate places for prospective students and 446 staff posts have been lost across the sector."
The minister now plans to launch "a wider conversation about the future financial sustainability of higher education" in September.
The Higher Education Big Conversation will comprise two stages.
The first will focus on promoting the value of higher education to individuals, the economy and wider society and will also outline how the existing funding system works and the challenges facing the sector.
The second "will be similar to a public consultation" where the department will seek opinions and solutions as to how Northern Ireland can secure a financial sustainable higher education sector in the future.
Asked if this would explore the possibility of increasing tuition fees, a DEL spokeswoman said: "Although the department will not be putting forward specific policy proposals such as the lifting of the student number cap or increasing tuition fees, it does welcome all options being open for debate and discussion based on the evidence that will be presented."
Mr Agnew said he is concerned that fees act as a barrier to higher education.
"The incentive to study pales when faced with tens of thousands of pounds of debt," he said.
"Young people have told me that they face a catch 22 situation. They can either take on the debt and study, with no guarantee of a job, or they can choose not to go to university. Either way, they may end up not having the career that they wish.
"Education should not be about who can afford to study. There needs to be equal access to affordable higher education for all so that young people have a choice."
NUS-USI President Fergal McFerran said education should be free from fees.
"The tuition fees experiment in England is failing and is a disaster for both students and the public finances. The new system of higher fees in England is expected to soon cost government more money than the previous system of lower fees, so raising tuition fees simply doesn't work," he said.
"The Stormont Executive must surely be sensible enough to avoid the failed economics of increased tuition fees. For students, education should be about opportunity not money. Northern Ireland needs the same higher education funding system as Scotland, to ensure education here can be free for everyone."
