Up to 50,000 migrants may have used flaws in the student visa system to come to the UK for work in its first year, the public spending watchdog said.
MPs called for the troubled UK Border Agency (UKBA) to "get a grip and fix the way it deals with student visas" after saying the report exposed one of the most shocking examples of poor management leading to abuse.
The points-based system was set up without key controls, potentially leading to tens of thousands of migrants entering the UK without any checks as to whether they were attending a college, the National Audit Office (NAO) said.
The critical report added that the under-fire UKBA also does little to ensure that foreign students leave the UK when requests to extend their stay are refused.
Addresses for almost a fifth of more than 800 migrants wanted by the agency were found in just one week at a cost of £3,000 by a contractor hired by the watchdog.
Margaret Hodge, chairwoman of the Commons Committee of Public Accounts (PAC), said: "This is one of the most shocking reports of poor management leading to abuse that I have seen.
"It is completely unacceptable that the programme was launched without key controls being in place. The agency has done little to stop students overstaying their visas. And it is extremely worrying that the agency does not know how many people with expired student visas are still in the country."
Amyas Morse, head of the NAO, said the flaws in the student visa system for people applying from outside the European Economic Area (EEA) were "both predictable and avoidable".
The agency withdrew entry clearance officers' powers to test applicants' intentions before it had controls in place over sponsor colleges, the report said.
Sir Andrew Green, chairman of the Migration Watch UK campaign group, said the watchdog had "lifted the lid on a scandal to which we have been pointing for several years". He added: "This report is a shocking indictment of the student visa system introduced by the previous government."