The policy change comes after concerns from some groups that students may be claiming benefits that they aren’t entitled to.
Instead, applicants must now provide a confirmation of identity letter from a Local Aboriginal Land Council or another Indigenous community-controlled organisation.
They also will need to meet the Commonwealth three-part identity test, which includes their identity being accepted by a community.
The Sydney University Students' Representative Council recently passed a motion opposing the change.
The student group believes the new policy may see some students excluded from much-needed support.
"This new policy is likely to disproportionately affect Indigenous people from the most disadvantaged backgrounds," the statement said.
"In some circumstances students may come from abusive families, have been in foster care or for other reasons not be able to get family documentation to undergo the process that has been proposed."
Sydney University confirmed to LADbible that the draft policy is currently under consultation.
"A revised policy is now at draft stage and we are seeking feedback and further input from members of our own and the broader community, representative organisations and other universities on this culturally significant matter," a University of Sydney spokesperson said.
"For the purpose of dedicated entry for students who are Aboriginal or Torres Strait Islander or students who wish to apply for particular scholarships, and for staff applying for an Identified role, the proposed policy requires the submission of evidence, including a Confirmation of Identity document from an Aboriginal community-controlled organisation."
The spokesperson added: "Staff and students can of course continue to self-identify their Aboriginal or Torres Strait Islander background without documentation."
The policy will not be retroactively applied to Indigenous students already on scholarships.
Last November, the Metropolitan Local Aboriginal Land Council (MLALC) complained to the Independent Commission Against Corruption about the number of students at the university identifying as Indigenous using statutory declarations.
MLALC CEO Nathan Moran said, as per the Sydney Morning Herald: "It’s open fraud. We say to academic students: can they pass a paper without citing a verified source??"
The university confirmed to LADbible that the new policy was in response to multiple expressions of community concern in relation to the use of statutory declarations, rather than specific concerns about fraud within the student body.
The latest Census data released in June showed a 25 per cent rise in people identifying as Indigenous.
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