Responses to the Scottish Executive's consultation reveal widespread alarm and a clear expectation that the legislation will be radically revised before going to the Scottish Parliament in the autumn.
While nobody opposes the principle of merging the funding councils, Universities Scotland has warned that it will withdraw its support for the move if there is any hint that it will lead to cost-cutting.
It fears that the legislation could be a threat to higher education teaching funds by using the levels established by the Scottish Credit and Qualifications Framework (SCQF). This, for example, puts a Higher National Certificate course at the same level as the first year of a university degree.
"Funding must reflect the fact that different programmes at the same SCQF level offer different learning experiences," Universities Scotland says, arguing that the benefits of teaching "by highly qualified academics in institutions with internationally competitive facilities" are worth the extra costs.
The Association of University Teachers Scotland fears funding by level would cause mission drift, with universities abandoning Higher National courses, and colleges focusing on higher education at the expense of further education.
But this is rejected by the National Union of Students Scotland, which is largely supportive of the draft Bill. It complains that colleges receive less money than universities "even for courses that are identical or equivalent". A single tertiary funding council is essential to solving this anomaly, it says.
Student leaders say it is disappointed that the Executive is not using the SCQF as the basis for defining tertiary education. Students are said to be increasingly impatient with the lack of recognition for equivalence of qualifications when students try to move between institutions.
The Association of Scottish Colleges sidesteps the issue of course funding.
But it objects to the term "tertiary education", which it condemns as archaic and poorly understood.
In their individual comments, as well as in a joint submission reported in last week's TES Scotland, the ASC and Universities Scotland agree that the Bill is misconceived in proposals which could lead to political interference and increase the funding body's role at the expense of governing bodies.
The Executive has said the merger does not aim to reduce the two councils'
staffing levels or running costs, but the ASC and Universities Scotland want to see the new body cut back.
NUS Scotland strongly backs an active planning role. "It is not (our) intention to remove institutional autonomy, but rather to recognise that there are limits to what institutions can deliver together without a central steer," it declares.
The Executive has no responsibility for key areas such as equal opportunities, the SCQF and fairness in internal procedures, NUS Scotland says. Even if the electorate and Scottish Parliament demand action, this would require cumbersome primary legislation.
The Coalition of Higher Education Students in Scotland opposes the Bill's provision for ministers to take action they think is "necessary or expedient". This appears to create an unfettered power that future ministers may misuse, it says.
Olga Wojtas is Scottish editor of The THES.