Immigration Minister Iain Lees-Galloway says international students are not here to provide cheap labour. The Government plans to reconsider international students' rights to work while studying and after they graduate.

A $261 million hit to the economy each year is likely the "best case scenario" under Government plans to stop "migration-motivated" international students seeking an easy path to residency.

A report from the Ministry of Business, Innovation and Employment (MBIE) to Immigration Minister Iain Lees-Galloway says removing work rights for international students in lower than bachelors-level qualifications will mean an estimated 7000 to 10,000 fewer students coming to New Zealand each year.

The Government will review international students' ability to work after graduation before looking at their right to work up to 20 hours a week while studying later this year. MBIE estimated up to a third of international students working while studying last year were pursuing low-level qualifications.

SUPPLIED Universities New Zealand executive director Chris Whelan says the risks to New Zealand's $4.2 billion international education industry are just as great "if we don't take the $260m hit".

Lees-Galloway said there was no target for reducing the number of student visas issued. Cutting down migration was second to "return[ing] our export education system to one that is focused on providing quality education".

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MBIE's report said having 10,000 fewer international students would mean $70m lost revenue from tuition fees and an estimated economic impact of $261m per year – assuming changes to work rights are successfully targeted at the "lower-value" tertiary sector. International enrolments at private tertiary colleges dropped by about 10,000 after English-language requirements were tightened in 2015 and 2017.

Those colleges, known as private training establishments (PTEs), stood to lose the most if work rights changed – it's likely some would "become unsustainable", the report said – but polytechnics and institutes of technology, which have increasingly relied on international enrolments as their domestic ones fall, were also at risk.

High volumes of "migration motivated" students, particularly from India, had contributed to a gradual decline in the skill level of permanent residents since 2012. The report noted Immigration New Zealand lacked the capacity to investigate the "large number" of allegations of migrant exploitation it received and manage visa fraud, such as "imposters" sitting interviews to verify an applicant's grasp of English.

Independent Tertiary Education New Zealand chairman Craig Musson said PTEs would "take a hit definitely" if prospective students' work rights were limited.

They needed to "look at the wider practice" and diversify their offerings and their students to survive, he said.

"If you go back to the early 2000s, there were a lot of English-language schools that jumped on the Chinese [student] bandwagon and then when the market diversified those businesses closed down.

"We don't want this to be done wholesale and we don't want this to be done overnight. Even with National [in Government] there were changes afoot . . . the problem at the moment is the uncertainty."

MBIE predicted short-term hospitality and retail labour shortages if students' work rights were changed. Lees-Galloway said other aspects of the immigration system were designed to fill labour gaps: "Students are primarily here to study, not prop up businesses that could be employing New Zealanders."

Universities New Zealand executive director Chris Whelan said the risks to New Zealand's $4.2 billion international education industry were just as great "if we don't take the $260m hit".

Talks were under way to establish a trade-off scheme, where international students would be eligible for a one-year work visa for each year of study they completed, Whelan said.

A similar system is used in Canada.