Rising numbers of former international students in low-grade jobs forced the Government to tighten immigration rules last year, official papers show.
Advice prepared for Immigration Minister Michael Woodhouse warned of a blowout in overall immigration numbers through a rapid increase in ex-students who were gaining automatic residency as skilled migrants.
Officials predicted the rise - driven by the Government's aim to increase revenue from international students to $5 billion a year - would breach the upper limits of both the Skilled Migrant Category and total residency approvals.
"Give the forecast growth path of export education for tertiary students, over time, the increase in international students are likely to place pressure on the SMC target range," said the April 2016 draft analysis paper by the Treasury and Ministry of Business, Innovation and Employment.
"And as the target is reached there is a risk that less experienced SMC migrants, working in lower wage industries, may crowd out the higher-skilled, professional SMC migrants that New Zealand is competing in a global labour market to attract."
The advice, obtained by the Herald under the Official Information Act, said former international students made up 27 per cent of all skilled migrants in 2006 but this had risen to 43 per cent in 2015 and was likely to reach 48 per cent by 2020.
Most were automatically eligible for residency as skilled migrants. Even a former student with a Level 5 qualification (the lowest level) would get the required 140 points if he or she had stayed on a post-study work visa, had a job offer and was under 30.
Other more valuable applicants were likely to miss out. "For instance, a 50-year-old Chief Technology Officer recruited from offshore with a job offer for $120,000 and 25 years of industry experience, who holds a diploma qualification, would only be eligible for 135 points."
The papers show the Government was also worried about a wave of bad publicity over rising immigration numbers.
A July briefing notes that Woodhouse and then Economic Development Minister Steven Joyce had been asked to report back to the Cabinet Strategy Committee with "information and data on Auckland immigration flows, and their impact on Auckland infrastructure and the housing market, including options for possible changes to immigration settings."
In October Woodhouse announced tougher immigration rules, which included lifting the Skilled Migrant Category threshold from 140 to 160 points, a review of the SMC points system, stricter enforcement of the English language test and a freeze on new immigrants bringing in their parents.
Student visa applications halved the following month in response.
However, Joyce and Woodhouse both told the Herald in December that rising international student numbers did not represent a serious immigration problem.
Joyce said; "We're bringing in graduates who are adding significantly to the New Zealand workforce, there's no doubt they're doing that."
Labour's immigration spokesman Iain Lees-Galloway said the advice showed that while the Government was publicly denying for months it had any concerns, it was busy working behind the scenes to make changes.
However he believed the problem would remain even after a review of the points system, because New Zealand was an easy destination for immigrants who came here to study low-level qualifications as a route to permanent residency.
"That poses quite a risk and it demonstrates that the Government has prioritised making easy money out of international education over both the welfare of the students themselves and the long term outcomes for New Zealand."
Woodhouse was unavailable for comment.
Immigration hit a new record high of 71,3000 this week. The Government has downplayed the importance of this net migration figure, which includes New Zealanders coming home, but it is likely to add to the political pressure in election year.
Former international students earn less than domestic students in nearly every occupation except health and nursing, the briefing papers show.
Foreign students with a Level 7 diploma in management or commerce earned a median $48,400 eight years after graduating, about $20,000 less than local students.
Those who took Level 5 to 7 certificate and diploma courses had median earnings of only $37,200 after eight years, when a quarter of them were still working in New Zealand.
The numbers may understate the earnings gap, as they cover only international students at government-funded institutions. The briefing says about 40 per cent of international students enrol at private training establishments (PTEs) which cater only for foreigners and receive no government funding.
These schools have received the biggest influx of poorly qualified students from India in the last three years. Their most popular study choice is management and commerce courses, such as business diplomas, which have been involved in many cheating scandals.