The actual scale of fall in students from India and other non-EU countries will be clear by September, when students arrive to start their courses, but lesser number of applications received by April-May suggests that international students may be looking elsewhere.
Britain faces stiff competition mainly from Canada and Australia to attract high fee-paying international students. The challenge has increased as changes to the student visa regime in the UK particularly the closure of the post study work visa have been reported widely in countries such as India and Nigeria.
According to The Sunday Times, universities are seeing falls of more than 30 per cent in applications from India "in the first signs that foreign students are being put off coming to Britain by the government's crackdown on migration".
Universities UK (UUK), the umbrella body representing 134 higher education institutions, has warned the prime minister that universities could lose between 5 to 8 billion pounds every year due to the restrictions put in place as part of plans to curb visa abuse and net immigration.
Prof Eric Thomas, chairman of UUK, says in a letter to Cameron that in China and India, Britain is seen as "putting up barriers to entry", and added: "The UK seems to be telling the world that it doesn't welcome international students".
Julia King, vice-chancellor of Aston University in Birmingham, told The Sunday Times that the university had experienced a "dramatic" slump in applications from India, which were usually about 1,000 a year but have fallen to 650 for 2012.
"They believe the situation is much friendlier in Australia, the US and Canada - other places where they can learn in English," King said. However, Damian Green, the Immigration minister, said: "There is no limit on the number of genuine students who can come to the UK and our reforms are not stopping them."
The newspaper also reported that Middlesex and Sunderland were among other universities seeing falls in applications from India.
"The declines are greatest in countries with strong English language media that pick up quickly on Britain's immigration rows. Numbers from Nigeria are also down at many universities," the report said.
Several institutions such as the British Council and the Institute for Public Policy Research have urged the government to review the restrictions on international students.
The Sunday Times quoted Kushan Banerjee, 26, from Calcutta, who completed a Master's course in marketing at Birmingham University, and is now working as a data analyst in the city to pay off his debts.
He said: "As of April the post-study work visa has gone. I was lucky, I applied in 2010. If I would have been in India and had heard they had stopped the post-study visa then I would not have applied and come here. Any student taking a bank loan can only pay it back if they have a proper job, not a job at a chippy. It's never going to attract students now."