A drop in recruitment of overseas students to universities in New Zealand and Australia due to the Sars epidemic could have a devastating knock-on effect for the institutions' incomes.

The cancellation of promotional trips to Asia, which has been badly affected by severe acute respiratory syndrome, is likely to result in a fall in enrolments for the next semester and for 2004. Spring is normally a peak period for recruiting fee-paying students across the region.

Foreign students constitute about one in five of the 800,000 student population in Australia's 38 universities, with another 100,000 attending schools and technical colleges. Any substantial drop in applications could have a major impact on university incomes, which are bolstered by more than A$1 billion (?400 million) a year in overseas student fees.

English-language tests that were to be held for thousands of prospective students in China this month have also been postponed. Last year, 90,000 of them sat tests to determine if they could be admitted to British and Australian schools, technical colleges or universities.

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The University of New South Wales has suspended recruitment drives in high-risk countries. Missions to China, Hong Kong, Singapore and Toronto have been cancelled and graduation ceremonies and alumni events scheduled for Bangkok, Kuala Lumpur, Singapore and Hong Kong have been postponed.

"We have constantly had to reassess our promotional activities in countries where we had planned education exhibitions and fairs," said Peter Giesinger, spokesman for IDP Education Australia, the nation's university-owned student recruiting agency.

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He said that the Sars epidemic had had an immediate impact on Australian recruitment activities in Asia, particularly in Hong Kong and China.

Without IDP's education exhibitions - it holds five or six a month that attract tens of thousands of potential customers a year - students have not had ready access to information from institutions.

IDP's Asian branches have reported a marked slowdown in the number of people seeking information about courses.

But, Mr Giesinger feels some optimism is warranted, given that after the terrorist attacks in the US in 2001 thousands of students turned to Australia as a safer place to study.

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In the case of New Zealand, Chinese student recruitment has been a success story.

In 1998, when New Zealand approved full access to Chinese students, only 400 studied there. By 2002 the figure had risen to 32,334, Figures from Education New Zealand, which coordinates promotion of the country as an educational destination, show that Chinese students now contribute almost half the country's total income from foreign students.