Private higher education firms may be unable to fulfil the "vision" set out by David Willetts, the universities minister, of forcing competition on universities because new student visa rules could cause many of them to go bust.
That was the scenario painted by delegates at a conference to help private colleges prepare for the visa changes, which will require them to be audited by the Quality Assurance Agency by the end of 2012 if they want to continue recruiting from outside the European Union.
The conference, which was organised by the QAA, heard that colleges have until 9 September to apply for "educational oversight" from the standards watchdog - and most will have to pay a fee of about £20,000 each to be reviewed regardless of their size.
Many smaller colleges report that they have been struggling since the announcement earlier this year of new visa rules that bar overseas students at private colleges from working while they learn.
The rules do not apply to such students at publicly funded institutions.
Claiming that demand from countries such as China and India has already dropped off, college leaders said the government's policy was giving the impression to those abroad that private UK institutions are now "closed for business".
Damian Green, the immigration minister who pushed through the reforms, spoke at the conference, which was held at Regent's College London on 7 July.
He drew gasps of astonishment from his audience when he dismissed as "questionable" the claims that work rights were a "key pull factor" for legitimate overseas students choosing the UK.
Sue Hindley, principal of East Thames Graduate School and chair of the private-college membership group Study UK, said the level of fees charged by the QAA and the damage already done to the sector meant that many small colleges faced an impossible financial situation.
"These people are going out of business before such time as David Willetts' vision can be realised where the private sector has a role to play," she said.
"The only option for private higher education providers now may be to start partnerships with universities - but then they are not there as the private competitors with universities that David Willetts wants to see."
Another delegate, Tim Murari, managing director of the Organisation for Tourism and Hospitality Management, said he feared that up to 75 per cent of OTHM centres might have to close because of the changes.
After his speech, Mr Green told Times Higher Education that reputable private institutions would have nothing to fear from the new regime, which was in no way anti-business. "It will enhance the reputation of those who obtain proper regulatory oversight, so it's good for their business in the long term," he said.
Asked why even "reputable" private colleges would still face bans on their overseas students working, he replied: "It was in the private sector where we found widespread abuse and the obvious examples of people who were getting a student visa simply to work."