UK Border Agency staff failed to check thousands of tip-offs about overseas students including whether they had actually enrolled on courses, a report said today.
Chief Inspector of Borders and Immigration John Vine found that the UKBA had allowed a backlog of 153,000 notifications from sponsors of non-EU students to build up, including whether students had enrolled on courses or were turning up for classes.
This could potentially have meant that thousands were wrongly allowed to remain in the country, he said.
The tip-offs were all reviewed by May this year, but Mr Vine said it must be an "ongoing priority" to make sure checks are carried out.
His team examined work at three UKBA offices in Sheffield, Beijing and Delhi.
The report found: "The agency had no targets in place for responding to notifications made using the Sponsor Management System.
"As a result, notifications of changes to circumstances of students, details of students failing to enrol or attend classes, or curtailment of sponsorship were not being acted upon.
"Over 150,000 notifications had accumulated and were awaiting action, meaning that potentially thousands of students had retained leave to remain when they should not have done so. This was a significant failure."
However, Mr Vine said his findings were "generally positive" and that he was "pleased" that the agency had reviewed the notifications.
He said: "I was pleased to note that in May 2012 the agency had reviewed outstanding sponsor notifications and launched an operation to identify and remove people, including students, who had overstayed beyond the term of their visa. This should be an ongoing priority rather than the subject of a one-off operation by the agency."
Shadow immigration minister Chris Bryant described the report as "damning".
He said: "The report reveals the scandalous situation where legitimate students are being turned away from attending our universities, while students reported to UKBA by our institutions for potentially going missing are not being followed up.
"The massive 153,000 backlog of people who have potentially gone rogue emphasises that, with Theresa May running the Home Office, we are getting the worst of both worlds."
Immigration Minister Mark Harper insisted that the Government has made student visa rules tighter.
He said: "We are the first Government to tackle the historically high levels of abuse in the student visa system.
"We have toughened the rules to ensure that genuine students are not taken advantage of by organisations looking to sell immigration not education.
"I am glad this report recognises the operational improvements that have been made at the Agency, and particularly that both Beijing and New Delhi consistently met performance targets."
The report is the latest to highlight failures at UKBA. Last week Mr Vine claimed that the agency had supplied misleading figures to MPs over the number of immigration cases that had been archived.
He found that 33,000 cases had not been included in figures given to the Commons Home Affairs Committee.
The report also revealed that at one point 100,000 pieces of post were left unopened as staff struggled to deal with an immigration backlog.
It also said that 2,000 people whose cases were placed in the archive because they could not be traced were actually reporting regularly.
On Tuesday UKBA's director of international operations and visas, Jonathan Sedgwick, and former UKBA chief executive Lin Homer both apologised to the committee for inadvertently supplying the wrong information.
Committee chairman Keith Vaz warned them that it would be treated as contempt if it happened again, and told Ms Homer: "We are very concerned and shocked at what Mr Vine has said and I'm glad you've come here and apologised and accepted your share of the responsibility."
A UK Border Agency spokesman said: "If we find that a student has broken the terms of their visa then we will take action to remove them.
"However not all of these notifications were to report potential abuse - sponsors notify us about a wide range of issues."