Peters said the education providers and the Government are "getting off scot-free", and criticised Minister for Tertiary Education, Skills and Employment Steven Joyce.
"This is what happens when Mr Joyce and the government pump up a business so private enterprise can profit but there are no standards; no tight rules or regulations just an open end industry to get as many students here as possible.
"It's a scandal that both the education providers and Mr Joyce have encouraged this fraud on the New Zealand educational system. In any other First World democracy Mr Joyce would have been held accountable and fired.
"There needs to be full scale investigation into export education fraud," Peters said.
Joyce responed that Peters was "shamelessly bagging an important New Zealand export sector for a cheap political headline".
"India is an important source country for New Zealand when it comes to International Education with around 20,000 of our 125,000 students annually coming from India.
There have been a number of cases where fraudulent documentation has been submitted. Unfortunately all of the main English language education countries have experienced some fraud issues in India, including the UK, the US, Canada and Australia.
There are currently 41 Indian students in New Zealand who face the potential of deportation, some for submitting fraudulent documentation to obtain a visa and others for committing crimes once in New Zealand."
Joyce said the Government makes no apologies for holding people to account if they have obtained their student visa fraudulently.
"Students make a declaration that the information they have provided for their visas is correct and it is ultimately their responsibility to make sure it is.
"In regards to agents, the government has passed a new law and a new code of practice that makes education providers explicitly responsible for the behaviour of their agents in-market, effective from the 1st of July this year.
"Immigration New Zealand has also increased its resources in its Mumbai office to detect fraud. Currently around 38% of student visa applications from India are being declined."
Indian community leader Sunny Kaushal, who has stood for Labour in the Manukau East electorate, said the Minister needs to accept responsibility for the "shambles".
"In both the cases majority of the students appeared to have no idea that the agents or schools were falsifying documents to make a fortune, and playing with the careers and lives of thousands of students.
"[The Government] must stop the deportation of these students or announce compensation against the fees paid. They must act fast to minimise the damage to the reputation of New Zealand International Education industry."
