Eligible tertiary education institutions will now be able to ask for extra funding when they go up to 2% above student num ber caps.
Previously, equivalent full time students (Efts) above an institution's cap were unfunded by the Tertiary Education Commission (TEC).
The change came about as ''some providers were returning funding unused because they are unable to enrol the agreed numbers of students'', Tertiary Education Minister Steven Joyce said in a statement.
''The change frees up that returned funding and gives other tertiary providers the chance to grow if their courses are in demand from students.''
The polytechnic, which has been ''running at 101% 103% [above its cap]'', would probably be applying for the extra money, acting chief executive Matt Carter said.
''We have been taking unfunded Efts for a number of years ... so I think it's a good thing,'' he said.
''It gives the TEC more flexibility to move funds, especially for institutions like ourselves that run slightly ahead of the cap. It just means we can have the conversation about what's possible.''
Mr Carter said the polytechnic was at 101% of its cap this year, as it was last year.
The polytechnic would probably not aim to lift its student numbers as a result of the policy change, Mr Carter said, but the change would allow it to get more money for students it already had.
''It'll probably fund us for the extra [Efts] we're already taking,'' he said.
The University of Otago also welcomed the change, albeit more cautiously.
''We will require further detail of how this new element of the funding system is going to work in practice to fully assess its impact,'' deputy academic vice chancellor Prof Vernon Squire said.
''In general terms, however, we welcome this as a positive development.''
Prof Squire said the university had previously ''run above the level of the funded target, and at other times below... Last year, we were below it.''
Tertiary Education Union national president Sandra Grey called the change ''quite minor in many respects for the sector''.
''It's a safe thing for the minister to do at the moment, because we know all around the country there's a drop in domestic student numbers.''
Nonetheless, the change was likely positive, she said. The previous system ''did cause some institutional stress and distress ...''
