Home Secretary Theresa May is backing a plan that would require foreign students to leave the country at the end of their courses.Mrs May believes the current rules are being abused, with many students staying in the country illegally after their studies, BBC political correspondent Carole Walker said.
The proposal is being considered for the next Conservative Party manifesto.
Labour said foreign students brought "billions of investment" into Britain.
Under the current rules, students from outside the EU are allowed to stay in Britain for four months at the end of their courses and if they get graduate jobs they can switch from student visas to work visas.
The plan put forward by the Conservatives would require anyone whose student visa expires to leave the country and re-apply if they want to continue their studies or take up graduate jobs.
A senior Home Office source said the "brightest and best" would still be able to come back to the UK, saying abuse of the system was fuelling net immigration.
Mrs May has admitted the government is unlikely to meet a target set by Prime Minister David Cameron to reduce net migration to the tens of thousands by the next election.
In April it was revealed that the number of overseas students taking up places at England's universities had decreased by 4,595 in one year - the first fall in 29 years.
'Economically valuable' Lib Dem Business Secretary Vince Cable has repeatedly clashed with Mrs May over foreign students, who he says have been caught in a "public panic" over migrant numbers.
Mr Cable has warned that the public debate about immigration is in danger of damaging the "economically valuable" recruitment of overseas students to the UK.
Shadow home secretary Yvette Cooper said Mrs May's immigration policy was "in chaos".
She said: "More does need to be done to stop people overstaying illegally when their visas run out - whether they arrived on student visas, work visas or tourist visas.
"But the answer to that isn't to prevent highly skilled overseas graduates getting legal work visas to fill shortages in fields like science or medicine here."