Fewer domestic places could be offered at Australian universities due to a cap on international students, peak bodies warn.

The federal government revealed on Tuesday it aims to cap international students at 270,000 in 2025, in a bid to reduce migration to pre-pandemic levels.

Chief executive of the Group of Eight Vicki Thomson, which represents Australia’s top universities, says the cap will lead to a reduction in the bottom line of tertiary institutions.

A cap would be detrimental to domestic students at universities, she said.

“If you start cutting our revenue source, we have to have some serious discussions around the number of domestic students we can have, because we teach those high-cost courses,” she told ABC radio on Wednesday.

“Every university will be looking at their bottom line, because you can’t rip out, in our case, potentially up to $1 billion in revenue in 2025, and that not have an impact on the bottom line.”

The $48 billion international education sector supports about 250,000 jobs across Australia, with overseas students having university fees three times higher than domestic students.

Thomson said across the Group of Eight universities, they would be forced to have a 30 per cent reduction, or about 22,000 international students, because of the the cap.

“It’s a distorted funding model, where we have had to increasingly rely on international fee revenue to cross-subsidise into research and into teaching, and that’s domestic teaching,” she said.

“In relation to jobs in our universities, to teaching, to research, there are some serious discussions and decisions that our institutions would have to make, none of them which will be palatable.”

Finance Minister Katy Gallagher says the cap is designed to take international student numbers back to levels that were in place before the COVID-19 pandemic.

“We’ve seen pressure, not only on universities, but with, numbers of people coming to the country. We’ve had to look across the immigration system to look at what’s going on,” she told reporters in Canberra.

“(Institutions) still have large numbers of international students arriving at their universities. Those universities do not have trouble attracting domestic students as well.”

Gallagher denied suggestions the cap could lead to fee hikes for domestic students.

“That really is a matter for those universities, but I would expect that they need to be seen as attractive universities for students to come and study in … they’ll have to take into consideration a whole range of factors.”

Universities Australia chair David Lloyd said the cap was a financial risk to the country.

“If international students say they don’t feel welcome in Australia, we run the risk of undermining the second-largest export industry in the country and damaging the economy,” he told ABC TV.

-AAP