International students are an important source of skilled migrants, and 38 per cent of those who qualified for residency as skilled migrants last year were former international students, Immigration New Zealand says.
Over the past decade, one in five international students gained permanent residency within five years of being issued their first student visa.
Mainly because of Indian international students transitioning to a work visa and then to permanent residence, India is now the largest source country for skilled migrants, overtaking the United Kingdom for the first time.
Following increases in the number of approved international students since 2006, the number last year fell 7 per cent to 68,980.
Tertiary Education Minister Steven Joyce said a 31 per cent fall in enrolments in the Canterbury region contributed to the decline.
Despite the drop, Mr Joyce said, tuition revenue collected by education providers increased 2 per cent to $745.7 million, the most since 2004.
"Despite the elevated New Zealand dollar, our high-quality education sector, together with the lifestyle experience that New Zealand provides for international students, is a combination few other countries can match."
Mr Joyce said poor quality education providers were being weeded out, and immigration settings had been tightened to ensure higher quality students would bring more long-term immigration benefits.
"It's a balancing act - on the one hand you are improving value and quality, and on the other hand you want to maintain and grow student numbers," he said.
Education New Zealand was working on the branding and positioning of New Zealand education "beyond the fact that it's English language, a Commonwealth country and broadly safe".
The minister is going to China this week, and he believes China and India will still be the key to the industry's growth.
But new markets from Southeast Asia, the Middle East and South America were also being targeted.
Last year, Chinese students, who made up 27 per cent of international students in New Zealand, increased by 4 per cent.
Students who complete at least a two-year New Zealand qualification can apply for a graduate job search visa, which would help them transit from study to work and then to residency.
More than half of the nearly 10,000 students on graduate job search visas last year found jobs related to their qualification, and were granted work visas.
A student support worker, who is assisting two Indian students who ran out of money after borrowing large sums to pay for fake job offers to support their residency applications, questions the apparent ease with which those on graduate job search visas find work.
"It is just hard to believe that so many can find jobs, mostly managerial positions, at a time when the unemployment rate is at over 7 per cent and 10 per cent for Asians," said the support worker, who did not want to be named.
AUT University researcher Danae Anderson said she was concerned at the lack of acknowledgment that many international students' primary goal in coming to New Zealand was to work and seek residence.
Her survey of 93 international students working illegally in five Bay of Plenty orchards found students were employed for $8 to $11 an hour and for up to 55 hours a week, breaching minimum wage and their student visa requirements, which allow them to work for only 20 hours a week. Most of these students were Indian men.
"As most are hesitant to be vocal or complain about their treatment, they therefore become an "invisible" workforce, paid under the table and not recorded in ACC statistics and vulnerable to exploitation," Ms Anderson said.
"They are generally exploited within their communities, and are unlikely to come forward as they are breaching their immigration conditions."
She said some ended up in prostitution to support themselves, which ialso breaches student visa requirements.
Ms Anderson said she had also interviewed Indian students who had paid for fake job offers.
International Education Group spokesman Paul Chalmers said a "failure of Immigration and NZQA to effectively manage inflow of visas" allowed poor quality education providers to continue operating.
"The constant erratic policy and operational mismanagement of this sector ... masks a wider issue - the lack of acceptance that many international students are using the opportunity to study in New Zealand to immigrate to this country," he said.
Labour export education spokesman Raymond Huo said the drop in student numbers would have an effect on the wider economy, including public transport usage and homestay providers who depended on homestay fees to help with their mortgage or rent.
Education New Zealand estimates an international student spends about $27,000 annually.
Students spent between $16,000 to $23,000 on living expenses on top of tuition fees.
student visas approved last year, 7 per cent drop from 2011
25 per cent
drop in first-time students from 2009
20 per cent
gained permanent residence within 5 years
38 per cent
of skilled migrants were former international students
Government revenue target for industry in 15 years
Graduate job search visa
9955: visas approved to 9939 individuals
5205: granted work visa
1526: granted other visas
3208: not issued another visa
Source: Immigration New Zealand
Yesterday: Asian immigration dominates
Today: International students
Tomorrow: The absent migrant economy