Universities are split on a government push to stifle international student numbers as budget figures show a failure to lower migration.
Visa processing will be slowed and limits applied to the number of international students a university can enrol under a direction issued by Home Affairs Minister Tony Burke on Thursday.
It replaced a controversial measure - known as ministerial direction 107 - that prioritised students from "lower risk" countries to weed out dodgy providers and agents luring students unable to support themselves.
But rural universities criticised the direction as they lost international students while larger universities in metropolitan areas were benefactors.
Ministerial Direction 111 will be fairer for regional and outer metropolitan universities as well as TAFEs, Education Minister Jason Clare said.
Labor tried to legislate a power that would give the education minister the ability to impose student caps for tertiary institutions but it failed to pass parliament after the Liberals opposed it, despite arguing for such a cap to limit migration.
Direction 111 will give priority status to visa applications for an institution for the first 80 per cent of what Labor said their cap would be, and then processing would slow.
While universities can go above what their cap would have been if the laws passed, it essentially allows smaller universities to catch up as their visas remain prioritised while those for larger institutions slow.
Opposition education spokeswoman Sarah Henderson criticised direction 111 arguing "this open-slather approach places no limit on the number of foreign students who can come to Australia" despite voting against the capping laws.
La Trobe University, located in Melbourne's northern suburbs, welcomed the change, with Vice-Chancellor Theo Farrell saying it was a "sensible approach" that addressed the uneven impact on education providers.
Universities Australia welcomed the removal of ministerial direction 107, saying it "wreaked havoc, stripping billions of dollars from the economy and inflicting incredibly serious financial harm on universities".
"We strongly support the Albanese government's decision to create a more even playing field for universities," chief executive Luke Sheehy said.
"They never deserved to be positioned as cannon fodder in a political battle over migration and housing."
Group of Eight chief executive Vicki Thomson said the move replaced one flawed process with another shift of "the goalposts yet again".
The group, which represents top universities, criticised the updated direction for creating uncertainty in the international student market.
Mr Clare had given universities their student caps for 2025 before the legislation passed, and despite it failing to be legislated, many universities had set budgets according to these numbers, Ms Thomson said.
"With just days before the end of the year, and with little apparent rationale, this number has shifted again," she said.
Labor is working to tame migration as it fights a political barrage from the opposition which argues high immigration is leading to strains on services and housing stress.
The Property Council has dismissed the link between international students and a housing crisis as they're only four per cent of the rental market.
But Labor's plan to limit migration hit a snag in the mid-year budget update that revealed while new arrivals had declined in line with expectations, migrants were leaving the country at a slower rate than expected.
Net overseas migration is forecast at 340,000 this financial year, 80,000 more than previously predicted.
Labor's migration target has been overshot two years in a row.
