Recent studies indicate that skilled immigration is most likely to achieve only small net welfare gains. Nevertheless, the distributional impact of skilled immigration is potentially large, despite the lack of attention paid it. The paper argues that the recent expansion of skilled immigrants may have led to a crowding out of domestic demand for education. Consequently, the expansion of skilled immigration may have contributed to the 'big squeeze' in Australian universities, rather than easing the mismatch problems in the labour market. . The author wishes to express his gratitude for very useful discussions with Steve Dowrick, Martin Richardson, Rod Tyers, William Coleman and other seminar participants at the ANU, and for the comments of two anonymous referees.