Private tertiary institutions say a drop in study visas for new Indian students is likely to drive some of them out of business.
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Immigration New Zealand has issued half as many new study visas to Indian students in the past five months as in the same period last year.
Between the start of July and the end of October it approved 3102, just 48 percent of the 6462 approved in the same period last year.
The fall was due to tighter rules for, and monitoring of, study visa applications from India because too many students were arriving with too little money to support themselves and too little English to study here.
The Auckland International Education Group, which represents 16 private tertiary institutions, said the government had gone too far.
Spokesperson Paul Chalmers said Immigration New Zealand's Mumbai office was turning down too many potential students.
"It's a matter of loosening up in Mumbai and saying 'this is now a catastrophic collapse'," he said.
"Rather than just trying to cut the shonky providers out of the market and the poor students who are filling in application forms incorrectly, they need to see if we can improve visa approval rates."
Mr Chalmers said the government was right to tighten English language requirements, but in some cases it was not clear why students were being refused visas.
"It's a wider-sweeping broom that is starting to block students for, from what we can see, no reason whatsoever. Students that would have previously been given visas are being declined."
Mr Chalmers said he expected the number of visa approvals would rise, but not to the highs of previous years.
Independent Tertiary Education New Zealand represents several hundred private tertiary institutions.
Its international education spokesperson, Richard Goodall, said good institutions would cope with the fall in enrolments from India, but others might go out of business.
"The solid reputable institutions are used to coping with the ups and downs of the market. It's a volatile market impacted by all sorts of factors, they'll be well used to it. The ones that are trading on the edge, they're going to find it tough and may choose to exit."
Richard Goodall said the number of visa approvals was lower, but the calibre of students was higher.
Polytechnics also enrol a lot of Indian students, but it appeared that their enrolments were not as hard hit as the private sector.
The Toi Ohomai Institute of Technology in Rotorua and Tauranga said its approvals had dropped only 10-15 percent.
Tertiary Education Minister Steven Joyce said the lower number of new visa approvals was likely to continue for a while.
But he said Immigration New Zealand was not being too tough.
"Don't forget what we're doing here is we're focusing on the things that are important for students to succeed here in terms of their English-language capability and their ability to support themselves financially when they're in New Zealand.
"So I make no apology for making sure that those things are followed up on and the declarations students make are correct."
A correction to the Indian market was needed, Mr Joyce said, and he expected numbers would grow again and at higher levels of study.
"It will probably be slower growth than what we saw in the previous two or three years.
"But India is always going to be one of the top markets. It's the largest economy in the world in terms of the number of young people seeking education including internationally."
Mr Joyce would not be drawn on what the fall in new visas might cost the economy, and said the amount students paid depended on the length and type of course.
Immigration New Zealand required foreign students to have $15,000 a year for living costs, and private institutions charged about $14-18,000 a year in fees making for an annual spend of about $30,000 per student.
Mr Joyce said he did not expect any institutions would go out of business because of the fall in the number of visas for new students from India.
