Thousands of Indian students are likely to go into hiding rather than return home, Winston Peters is warning.
The NZ First leader says the government's 2013 decision to allow foreign students to work led to many of them taking out huge loans in their home countries, with repayments depending on wages earned in New Zealand.
"They can't return home to repay loans and will go underground, providing more cheap black market labour for unscrupulous employers who are already exploiting foreign students," he said on Friday.
"The Government created this human disaster in their rush to boost the international student industry."
Mr Peters says the Government's crackdown on foreign student recruiters, announced on Thursday, is too weak and too late.
A new code has been issued requiring education providers to take more responsibility for the recruiters they use.
Tertiary Education Minister Steven Joyce said there were recent examples "where some Indian agents have not behaved well" and providers in New Zealand hadn't taken responsibility for them.
Mr Peters says the damage was done in 2013, and since then there's been a steep rise in the number of students arriving from India.
In March this year RNZ reported a surge in the number of Indian students had been accompanied by thousands of false applications and problems with with English language screening.