AUSTRALIAN universities are facing a funding crisis that could throw Julia Gillard's education revolution into turmoil.

The nation's $6 billion education business with China is in jeopardy, according to Chinese agents.

The sector is facing further college closures as enrolments for the next two intakes from China have fallen by up to 40 per cent from China and demand from nine out of 10 of the biggest markets waning.

"The situation has never been so severe, and might be worse if nothing is to be done about it," Li Ping, president of Aoji Education Group, China's biggest education agent, said.

"Next year will be even more difficult . . . With other countries being more aggressive and attractive, I'm afraid Australia will fall off an irrevocable cliff and can not be saved for years. The business is on the very verge now."

Forward enrolments from China for next month's summer intake are down by 30-40 per cent for universities and up to 80 per cent down for TAFE colleges.

Universities such as Sydney's Macquarie and Melbourne's Monash which rely heavily on students from China are expected to be hardest hit.

China provides 27 per cent per cent of Australia's 545,000 foreign students. Australia's Skilled Migration List - which was cut by more than 50 per cent in May - has been the reason for the decline.

"At least 60 per cent of students and their parents ask about the possibility of immigration before they make a decision," Wang Wei, general manager of agent Cross World International Centre, said.

"After they go abroad, maybe 95 per cent would think about immigration," Ms Wang said.

"Before 2006, Australia topped the destination countries.

"Now the rank is US, Britain, Australia and Canada, among the Western destination countries.

"But the gap between Britain and Australia is widening."

ADDITIONAL REPORTING: ZHANG YUFEI