In draft legislation, offenders may face up to two years' jail or a $210,000 fine if found guilty.

The legislation is aimed at those who provide 'contract cheating' services, whether from within Australia or from overseas, and not at students.

Students who cheat will continue to be subject to universities' own academic integrity policies and sanctions.

The federal education department describes the penalties outlined in the draft bill as "intentionally severe, to provide visible and meaningful deterrence" to providing or accessing commercial and other organised cheating.

It also aims to give a more streamlined mechanism for institutions to address detected cheating activity "with clearer avenues of support from regulators and law enforcement".

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Academic cheating services in the draft legislation include completing an assignment, providing any part of a work or assignment, providing answers for exams and sitting exams.

Legitimate help provided to a student with special needs (e.g. a scribe help a student with disability during an exam) will not be affected in any way.

Professor John Germov, provost and deputy vice-chancellor of academic at CSU, said the institution supports the overall intention of the draft legislation to protect the integrity of the higher education system.

"Legislation that makes the provision and advertising of contract cheating services a criminal and civil offence, with significant financial and custodial penalties, will provide an important deterrent to contract cheating services," Professor Germov said.

However, he said CSU recommends that the legislation be limited to commercial contract cheating services, with universities continuing to address other cheating activities by students through their academic integrity and misconduct policies.

"A distinction needs to be made between a commercially organised activity and a non-commercial activity undertaken by an individual," he said.

"For example, where a student shares an assignment with another student with no intention of cheating.

"The university submits that as currently drafted, the legislation could unintentionally capture innocent students who undertake the latter kind of activity.

"These cases should not be subject to penalties under the proposed legislation but should be dealt with under an institution's own academic integrity policies."

Steven Seabrook, student representative council president at Wagga CSU, said it is a "brilliant idea" to ensure fairness.

"You have some students working through their degrees while others are paying for their degrees, so this would make it fair," Mr Seabrook said.

"It must be quite prevalent if the government is stepping in - something must've triggered it."

Asked about whether the potential maximum penalties, if enacted, would deter the practice, Mr Seabrook said they would.

"It'd stop a business doing an unethical thing," he said.

"I'm a bit surprised that this is going on, considering that universities have literacy and numeracy programs, as well as tutors and mentors on campus."

CSU's academic integrity policy and student misconduct rule, based on the Higher Education Standards Framework principles, cover all aspects of cheating, including contract cheating.

The draft legislation was released in April this year and submissions closed in late June.

The Tertiary Education Quality and Standards Agency was allocated additional funding in the 2018-19 budget to provide support to higher education providers on this issue.

Once enacted, the legislation will give the TEQSA powers to take action against academic cheating services, including investigation and prosecution of identified offenders.

TEQSA will also be given powers to seek Federal Court injunction to prevent access to domestic and international websites promoting cheating services.

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