Up to 15,000 foreign students may be using Australia's student visa system to enter illegally to work rather than to study.
The federal government has set up an investigation into claims that unscrupulous agents in Asia and Australian private college administrators are arranging for foreigners to enter Australia as students although they do not intend to enrol.
Labour senator Kim Carr has accused the government of inaction. Senator Carr claims Australia's Aus$3.5 billion (Pounds 1.4 billion) education export industry is under threat because corrupt operators are profiting from loopholes in the immigration laws.
Raids by immigration officials in Melbourne resulted in more than 30 students from India, Pakistan and Nepal having their visas revoked. The students, who were allegedly enrolled in the Australian School of Business Administration, Technology and Research, had no books, assignments, study notes or diaries and were unable to prove they were in Australia to study.
Senator Carr described some of the private institutions set up to capitalise on the growth in the overseas education market as "visa shops", where smugglers operated under cover of the colleges. The institutions were enrolling many times the number of students who actually attended and were falsifying their records.
In parliament, Senator Carr called for the National Crime Authority to be brought in to investigate the overseas student sector: "The people I am dealing with suggest to me that there is widespread criminal activity occurring in this industry.
"The bulk of the industry is sound but why isn't the government better placed to deal with this growing scandal? It is not fulfilling its role to act as a quality-control gatekeeper."
Education department officials told a senate hearing that they were investigating allegations involving about 20 private colleges.