Government ambitions to dramatically expand the number of private colleges risk being defeated by an overzealous Home Office crackdown on immigration.
Rules banning foreign students at private institutions from working part-time have led to a 70 per cent drop in applications, a damning report warns today. CentreForum, the liberal think tank, warns at least one respected college has already closed while "others are having to retrench or be taken over by public universities".
The report will say the impact of the changes "has been swift and probably even more devastating than was predicted".
It pitches the Department for Business, Innovation and Skills (BIS) – which wants to open up the private sector to more UK students – against the Home Office, which has boasted of shutting what it claims are "bogus colleges" since the coalition was formed.
BIS ministers are fearful that the get-tough stance is deterring overseas students from learning in Britain, and that many bona fide, reputable colleges will also have to shut.
Chris Nicholson, the report's author and CentreForum chief executive, said: "The student visa controls make a mockery of the Government's aim to promote greater diversity in higher education. The private sector is being critically undermined."
It is feared that the crackdown will mean that thousands of students from India, China and South America will abandon plans to study in Britain, opting for other English-speaking nations, including Australia, New Zealand and Canada.
Many reputable institutions have welcomed tougher rules under Tier 4 of the points-based system for foreign students, including obtaining Highly Trusted Sponsor status and degree students being able to speak English at upper-intermediate level.
Officials at the Department for Business believe it is "only fair" to treat those private colleges who pass the tests in the same way as state-funded institutions. "There should be a level playing field," a source said, adding that good colleges had been caught up in the "collateral damage" of the Home Office eagerness to appear tough on immigration.
Announcing a shake-up of student visas in March last year, the Home Secretary, Theresa May, announced that only students at publicly funded colleges and universities could work part-time. "Students who want to come here should be able to speak English, to support themselves financially without taking paid employment, and to show that they are coming for study, not for work."
Alex Proudfoot, from Study UK, which represents the UK independent college sector, said that there was a "tension" in the Government's conflicting policies. While figures are not collected centrally, it is thought that at least 30 have shut in the last year, he added.
"One of the driving forces behind all of these changes is the Conservative Party's manifesto commitment to reduce net immigration to tens of thousands, and international students represent the largest stream of non-EU migrants to the UK, if counted as such."
"Of the colleges who would be best placed to offer the alternative in years to come, there is a danger that, if they don't survive the next year or two because their existing income streams and markets have been squashed, they won't be around to liberate the market. There is certainly a tension there."
The CentreForum research is expected to be crucial to the case put by David Willetts, the Universities minister, in arguing with the Home Office that the rules need to be looked at again. To date, evidence from the private sector has been poor.
The coalition's Higher Education Bill was expected to pave the way for a major expansion in the private sector market in further and higher education, but last week it emerged that it may not appear in the Queen's Speech in May.
Cavendish College, which was founded in 1985 and at its peak had 850 students on its books, is the most high-profile casualty of the changes so far. Offering diploma and degree programmes mainly to international students, it was forced to close in December. Its principal, Dr John Sanders, has been trying to help hundreds of students into other colleges to finish their courses.
"When they first introduced the points-based system it was something a lot of good colleges supported. It soon became apparent that rather than a targeted approach on bogus colleges, it was a machine gun approach. It seems as if it was easier to shoot everyone down and see who was standing at the end of it.
"Withdrawal of these part-time work rights has really killed off recruitment for private colleges. They are cleaning out a lot of good colleges as well as the bad. The attitude from the UK Border Agency is 'we don't care, you are a threat we are going to shut you down'.
"BIS wants to expand higher education provision but UKBA are not allowing the private sector to make that contribution."