International students coming to the UK will have to pay more for their visas - but the increase is not as large as universities had been fearing.
Ministers say most foreign students will not be put off
The fee is rising from £85 to £99 on 1 April - rather than the proposed £129.
Visa extension fees, for postgraduates wishing to remain in the UK, are to rise from £250 to £295.
There had been concerns the increases would deter foreign students, who are a valuable source of income for UK universities in a competitive market.
Universities and student groups welcomed the changes, saying they would help to attract overseas students to the UK.
The student visa fee was last increased in 2005-06, and there was no rise in 2006-07.
As part of a shake-up of the system, the government is raising the charges for people coming to the UK to work.
But the Higher Education Minister, Bill Rammell, said: "The government recognises the benefits international students bring to the UK.
"The new fee structure is aimed at maintaining the attractiveness of the UK as a student destination, by keeping the student visa fee as low as possible, and in some cases reducing in cost over the next year.
"Today's changes will help ensure Britain continues to attract the legal students who contribute so much to the UK's economic and cultural life."
The international students' officer at the National union of Students, Issahaku Kotomah, said: "We are grateful that the voice of international students has been heard, as many see fees as an additional barrier to come and study in the UK.
"We believe it is right students should pay less as they are not coming to the UK to work but to study. International students are already faced with the cost of exponential international students course fees."
The chief executive of the vice-chancellors' group Universities UK, Diana Warwick, said the announcement was an acknowledgment of the "considerable benefits" that international students brought to the UK.
"We cannot assume that international students will automatically choose to come here. Our competitors are increasingly marketing themselves more aggressively," she said.
"Decisions by prospective students about whether to study in a particular country or not will often hinge on the financial implications.
"Any small financial advantage we have therefore is invaluable."