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The immigration changes, which come into force in November, will bring in stricter rules for work visas, especially for foreign students with lower-level qualifications or those who are studying in Auckland.
A proposal to make international students in higher qualifications study for at least two years before becoming eligible for a work visa has been dropped. The threshold will remain at one year.
Immigration Minister Iain Lees-Galloway said the changes ended the "bums on seats" approach of the previous Government and emphasised quality over quantity.
"These new immigration settings will better match the skills that people study in New Zealand with the skills that employers need to grow their businesses," he said.
"Our changes will support the attraction of international students studying at higher levels of study, and those who undertake high quality, sub-degree courses that deliver the skills needed in our growing economy."
Under the existing rules, international students can get a two-year work visa in New Zealand if they get an offer of full-time work in their field after they complete their studies.
The Government has scrapped that option for all levels of education.
"The removal of employer-assisted post-study work rights at all levels will help reduce the risk of migrant exploitation, and better protect New Zealand's international reputation," Lees-Galloway said.
Instead, students who gain lower qualifications like certificates or diplomas will be able to get a one-year post-study visa, with an additional year for graduate diploma graduates working towards registration in a trade or professional body.
Students who get these qualifications outside of Auckland can get a two-year post-study visa, as long as their studies are completed by the end of December 2021.
Lees-Galloway said this would provide incentives for students to study and work in the regions.
International students who gain higher qualifications such as a bachelor's degree or post-graduate degree will be able to get a three-year work visa, without any employer-assisted component.
National Party immigration spokesman Michael Woodhouse welcomed the Government's decision not to progress changes which would have made it harder for students in higher qualifications to get work. He described it as a major backdown by the Government.
"We told Labour before the election that its policy to slash the number of international students would gut the international education sector and grind our economy to a halt," he said.
The scrapped proposal could have cut student enrolments by half and prevented overseas-qualified teachers from getting registration in New Zealand, Woodhouse said.
The rules have also been tightened for students whose partners want to work in New Zealand.
Until now, international students who are studying for a post-graduate degree can get work or student visas for their partners or children – which means fees-free domestic schooling.
From November, this will only apply to students who are studying a qualification on the long-term skills shortage list.
"New Zealand is a nation that must compete on quality, not quantity," Lees-Galloway said.
"Our changes reinforce New Zealand's attractiveness for international students and match up positively with our key comparator nations."
Stricter rules for international students was included in Labour's coalition agreement with NZ First.
The agreement says the Government will "cut down on low quality international education courses" and "take serious action on migrant exploitation, particularly of international students".