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Figures released under the Official Information Act show $1.9 million worth of student allowance fraud was detected by the Ministry of Social Development last year, up from less than $1 million two years earlier.
In the worst example, a student fraudulently took more than $37,000 $31,400 more than the average yearly allowance.
The figures follow an announcement by the ministry that it is to carry out a new datamatching programme with Inland Revenue, which it hopes will make it easier to catch students who are earning above the limit while receiving a benefit.
The ministry already shares information with the Department of Corrections, and with Customs, and the Department of Internal Affairs.
Students are allowed to earn up to $135 a week before tax, without their allowance being affected, although that limit will increase to $180 from next year.
Most allowance fraud cases involve students who find work or stop studying without informing the ministry.
Benefit integrity services manager Keith Manch said the jump in allowance fraud detected was partly due to extra effort from the ministry, which recently doubled the number of staff dedicated to student fraud.
"A lot of people who get caught up in this don't do it deliberately and they're not criminals," he said. "They're in a system and they've got their own issues going on. They're short of money that's why they're in the system, and they're not in work. When they finally get work . they may take a lessthanperfect approach to the way they make that transition."
While the number of cases detected increased dramatically up from 340 in 2002 to 489 last year the fraud still represents only a small proportion of students receiving an allowance.
However, the increase occurred over a period in which the number of students receiving allowances dropped by more than 10 per cent to just over 60,000. The total number of tertiary students increased 15 per cent to 370,000 over the same time.
National Party education spokesman Bill English said the increase in allowance fraud was a worrying trend, and he was surprised at the tiny proportion of cases only eight out of 489 that were successfully prosecuted last year.
"Agencies can get into a bad attitude about these things," he said. "In this case, I think there's a risk they're not prosecuting enough people to ensure everyone knows you can't rip off the system."
The eight prosecuted fraudsters, who were all polytech students, stole between $3900 and $13,000 and were given community service sentences.
However, of the 10 worst cases of last year which ranged from $17,000 to $37,000 none ended up in court.
Mr Manch said with complicated, longterm fraud cases it was sometimes difficult to gather evidence to a court standard.
In all cases where fraud was detected, the ministry worked to recover the money, even if they did not prosecute the student, he said.
The jump in fraud cases did not necessarily mean it was too easy for students to exploit the system.
"The balance between making it extremely hard to get the benefit because you don't want anybody being able to rip the system off and making it a workable process that the majority of people deal with honestly . that's the challenge."