The Australian government commissioned a review of its student-visa system last December after overseas recruitment was battered by a "perfect storm" of problems, including the strong Australian dollar, stricter visa rules and a series of attacks on Indian students.
This decline in overseas student numbers "is causing serious problems for the viability of the sector", the review, published last week, says.
Key points from the report - the 41 recommendations of which have been accepted by the government - include streamlining visas for overseas students at universities (but not all tertiary institutions) as they are judged to be "low risk"; and introducing visas to allow students to work in Australia for up to four years post-graduation.
The government says the post-study work visa will "apply irrespective of the nature of the course and would not be tied to working in any particular occupation". It will be introduced in early 2013.
The review, led by former Labor minister Michael Knight, says "a moderate period of post-study work right will be essential to ensuring the ongoing viability of our universities in an increasingly competitive global market for students".
It adds that "most of our competitor countries" offer post-study work visas, with "the main exception" now being the UK.
Paul Wellings, vice-chancellor of Lancaster University, who will move to Australia to take charge of the University of Wollongong next year, said the Australian government had previously "headed in the direction that we are heading (in the UK), which was to restrict the high intake of foreign university students".
He added that Australia's visa restrictions had sent negative "messages" to China and India "about how open the economy is".
The UK sector is making the case to the coalition that "higher education is a major UK service industry", Professor Wellings said. "We've got to ask why we are starting to restrict student migration given that we know that the vast majority of students go back to their countries."
The coalition mounted a review of student visas following the Conservative Party's general election pledge to cut immigration.
The post-study work route will be closed in April 2012, after which non-European Union graduates wanting to stay on for work will need an offer of a skilled job from a sponsoring employer.
Dominic Scott, chief executive of the UK Council for International Student Affairs, said that in Australia, English-language requirements for students taking English-language courses will be scrapped (while being introduced in the UK), and university students will be given "low-risk" status across the board (whereas country-by-country judgements will apply in the UK). He said the moves would "put the UK on the back foot".
Don Nutbeam, vice-chancellor of the University of Southampton and former academic provost of the University of Sydney, said the Knight review was focused on improving Australia's performance in its traditional Asian markets.
He said that if the review was successful, it would boost Australia's position and "increase the competition for British universities".