Chinese citizens are swarming the EB-5 visa program, which requires applicants to invest at least $500,000 in order to gain permanent residency. (Photo by Spencer Platt/Getty Images)

For the first time in its 24-year history, an immigration program that grants visas to foreigners who invest at least half a million dollars in a U.S. business has nearly run out of visas for the fiscal year—largely because of unprecedented demand from Chinese applicants.

Until recently, the program did not nearly come close to hitting its annual cap of 10,000 visas given out to investors and their immediate family members. By law, no single country can be issued more than 7 percent of that total, although the government has allowed any visa slots unclaimed by other countries to be handed over to China.

But with many Chinese citizens eager to leave the country—whether it’s for cleaner air or better educational opportunities for their children—it’s estimated that about 85 percent of the quotas have been going to Chinese applicants. And the State Department is now cutting off new Chinese applicants—at least until the start of the next fiscal year in Oct. 1.

Students who study in the United States are often especially eager to obtain an EB-5 visa since other paths to permanent residency can be more difficult. Eric Zhu, 25, started researching the EB-5 application process a year before he graduated from the University of Missouri-Columbia.

With a major in international business, he thought he had little chance of staying in the United States obtaining an H-1B visa, another type of visa more typically given to foreign workers in the fields of science, engineering and technology. Zhu figured that an EB-5 would be a much easier and convenient way for him to obtain permanent residency in the United States since he could use his parents’ money to make an investment.

He quickly stumbled on a number of agencies that specialize in helping foreigners navigate the EB-5 process, but he heard nightmare stories of people being duped out of thousands of dollars by these middlemen.

“There are so many unreliable EB-5 agencies out there. A loss like $500,000 probably means nothing for a really wealthy family,” Zhu said. “But for me, it’s too risky.”

In the end, he decided not to apply, deciding to take his chances with the H1-B program instead.

Foreign students studying at universities in America reached a new high of 819,644 last year. About 200,000 Chinese students are now studying in the United States, up from 16,000 in 2003.

Opportunities to stay following graduation are limited, though. The current visa system limits the number of H-1B visas to 85,000 for private employers per year, of which 20,000 are set aside for graduates of U.S. universities—numbers that have barely budged over the past decade.

While H-1B visas are often an option for students, only 35 percent of H-1B visas in 2010 went to students who studied in the United States under a full-time student visa. Furthermore, if a former foreign student’s employer is able to obtain an H-1B visa and is willing to sponsor a green card application, the wait time for permanent residency can be more than 10 years due to limits on how many visas can go to each country — a problem that’s particularly acute for Indian and Chinese nationals, which have two of the largest foreign student populations in the U.S.

In addition to investing at least $500,000 in a U.S. business, an investor seeking an EB-5 must also prove that he or she created or preserved at least 10 full-time jobs in the United States in order to secure permanent residency.

Linda Kang, 50, a lawyer who practices in Hubei province in China, said she helped a friend with an EB-5 program application in August. Kang said her friend, who is a business owner, was worried her son wouldn’t be able to find a job and obtain an H-1B visa after he graduated from an American university. Kang said her friend spent a small fortune on the process: a $560,000 investment in a U.S. business project, $20,000 legal fees, and $40,000 for a bank that monitors the use of funds in the project. If the project goes well and jobs are created as required by the program, Kang said, her friend’s son is likely to get a permanent green card in two years.

Starting Oct. 1, a new batch of 10,000 new EB-5s will be available again. But the State Department estimates that it will soon start to see a more permanent backlog in EB-5 visa applications from China – with wait times of about two years at first but then stretching out to three years for applicants to hear back from the U.S. government about whether their petitions have been successful.

The current backlog is estimated to amount to 10,375 applications. The hold-up presents a big problem for Chinese students trying to stay longer through the visa program. If they turn 21 while awaiting approval for the application, they can no longer claim to be a dependent of the parent making the investment that qualifies them for residency.

“Parents need to start early in their EB-5 application process,” said Robert Divine, an attorney at the Baker Donelson law firm. Because of the length of the waiting list resulting from backlog, he said, applicants who are parents should try to file before their child turns 18 years old.

The increased demand has also attracted criticism that the EB-5 program is being abused and needs more government oversight.

“Like any program, there are good people and bad people in the program,” said Stephen W. Yale-Loehr, an immigration law professor with Cornell Law School. “And it’s both important for the immigration agency and Security and Exchange Commission to exercise proper oversight to allow the good projects to go forward and to stop the fraudulent projects.”

In February 2013, the SEC filed a lawsuit against a Chicago-based regional center owner who is charged of attempting to defraud more than 250 investors, mostly Chinese, of investments worth more than $150 million. The project involved a hotel and conference center in Chicago. Most recently, the SEC charged a Texas couple with stealing funds from foreign investors under the name of the immigration investor program.

But despite the risks, Yale-Loehr argues that the program deserves to be expanded.

“It’s a program that’s a four-way win,” said Yale-Loehr. “It’s a win for US tax payers because it brings in foreign money to help develop projects at no expense to the taxpayer. It’s a win for U.S. workers because it creates jobs. It’s a win for U.S. project developers because it allows them to get money for projects that might not be able to get otherwise. It’s also a win for the foreign investors because they get a green card from their investment in United States.”

The U.S. Citizenship and Immigration Services estimated that as of 2012, EB-5 program had created more than 49,000 jobs. The government says the program has generated more than $6.9 billion in new investment since its pilot program in 1990.

“It’s a rare immigration program that enjoys bi-partisan support. I think that for all of these reasons Congress should increase the number of EB-5 visas available each year,” said Yale-Loehr.