The National Union of Students (NUS) Scotland said the Post-16 Education (Scotland) Bill would make institutions more accountable and ensure they recruit greater numbers of students from poorer backgrounds.
The Bill, unveiled by Education Secretary Michael Russell, has come under fire from universities.
The legislation lets ministers set priorities for universities in return for public funding, such as ensuring institutions comply with new rules on governance and widening access.
It also gives the Scottish Funding Council, which administers public money on behalf of the Government, powers to review course provision.
A submission by NUS Scotland to the Scottish Parliament's education committee states: "As recipients of huge sums of public money it is important they are transparent and accountable to their staff, students, and wider communities."
On reviewing subjects, the submission states: "Over the past few years we have seen high-profile examples of institutions undertaking large-scale course closures and staff redundancies, often with little perceived academic benefit. We believe the power to review could be, and should be, used in situations such as these to protect the sector from negative reductions in provision."
However, UCU Scotland, which represents university lecturers, was more critical in its submission. The body welcomed the provisions to widen access and the inclusion of a legal requirement for universities to meet standards on governance.
But it added: "We have concerns over the legislative powers to review course provision as this opens up the possibility for a Government to directly influence courses and content.
"This opens up the possibility of political interference in the provision and content of courses, undermining the institutional autonomy of universities and the academic freedom of lecturers."
A Scottish Government spokesman said it was listening to all points of view.