The dramatic reduction in enrolments comes after a series of attacks on Indian students living in Australia made international headlines.
The drop also coincides with changes to the skilled migration scheme that make it harder for students studying here to gain permanent residency.
Indian applications bucking trend
Glenn Withers, CEO of Universities Australia, says Indian applications are bucking the overall education trend.
"The total number of visa issued late last year were increasing over all, however in India they have dropped very substantially," Mr Withers says.
"Applications from every other country are up by several thousand, for instance, for the last three months of visa issues towards the end of last year, whereas Indian applications were down by nine thousand. That only left three to four thousand."
Private colleges feeling pinch
It's not just universities feeling the pinch.
Anthony Bohm, CEO of Think Education Group, says there is some evidence to suggest enrolments in private colleges are down, too.
Mr Bohm, whose company provides education to foreign and domestic students through an alliance of private colleges, says changes to the skilled migration program are worrying for his industry.
"India has become an increasingly important market for us," Mr Bohm says.
Safety issues 'overblown'
"The safety issues (relating to attacks on Indian students) have probably been taken out of proportion, and there's something of an alarmist reaction in India to the particular issues."
"I suspect that the most material impact on the market is in fact the changes to the skilled migration program," he says.
"I think that issue is going to play itself out over the coming months and that's probably going to have much more of a significant impact on enrolments and the perception of Australia and that has to be managed incredibly carefully going forward."
Both Mr Bohm and Mr Withers are optimistic the drop in enrolments is a fleeting problem.
Mr Withers says changes to the skilled migration program will weed out those who come to Australia for reasons other than to study.
'Opportunistic education'
He says amendments to the scheme will encourage enrolments in reputable institutions.
"What we were worried about was much lower quality, easier to obtain qualifications where education wasn't the principle focus; it wasn't advanced education which would truly benefit Australia. It was opportunistic education that got you into Australia."
Mr Bohm says publicity surrounding the attacks on Indian students has meant long-overdue improvements in the sector have finally been met.
"If there's a positive out of this it's probably just a timely reminder that institutions, and the sector as a whole, need to keep a very active and open communication channel with the student body."
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