Organised crime could be profiting from student loan fraud involving £60m in funding at unregulated colleges in England because of lax oversight, according to a report by the National Audit Office.
The public spending watchdog said there has been “several instances of potential fraud and abuse” at private higher education providers, which offer courses leading to degrees awarded under franchise by mainstream universities as part of a commercial arrangement.
Some providers are said to enrol students with little or no interest in completing a course but who can apply for government-backed maintenance loans worth up to £13,000. The provider can gain £9,250 in tuition fee loans, part of which is then paid as franchising fee of up to £3,000 per student to the degree-awarding university.
In other cases, agents are offered lucrative commissions to sign up students. Examples of fraud detected by the Student Loans Company (SLC) – which administers the loan system for the government – included the involvement of organised crime, identity theft and false documentation.
The House of Commons’ public accounts committee this week announced it would hold an inquiry into the regulation of franchise providers.
Meg Hillier, the MP who chairs the committee, said in response to the NAO report: “Recent fraud has exposed significant gaps, including no clear responsibility for fraud enforcement across controls designed to protect students and taxpayers’ interests which have been exploited.
“The Department for Education must clarify and strengthen these controls and promote an anti-fraud culture across government.”
Robert Halfon, the higher education minister said: “Franchising can be a good way to support more people from disadvantaged backgrounds into higher education, however I recognise there is more to do to strengthen oversight.”
The NAO report said data analysis by the SLC in 2022 “detected instances of fraud, potentially associated with organised crime”, leading it to a wider investigation that identified “suspicious patterns of activity” involving franchised providers partnered with 10 mainstream universities. After consultation with the DfE, the SLC challenged 3,563 suspicious applications totalling nearly £60m in funding.
Since 2023, the SLC has led a group within the National Crime Agency, including the Serious Fraud Office, to combat student loan fraud committed by organised crime groups.
Chris Larmer, chief executive of the SLC, said his agency routinely monitors applications to detect suspicious activity, as well as requiring confirmation of student registration and attendance from providers before any payments are released.
The NAO said that while franchise students composed just 6% of those receiving loans in England, they accounted for more than half of the total loan fraud uncovered last year by regulators.
The numbers enrolled as full-time franchise students in England has rocketed in recent years, rising from 30,000 in 2018-19 to more than 90,000 in 2022-23, as more mainstream universities entered into franchising agreements to award degrees with commercial alternative providers, which are not regulated by the sector’s watchdog, the Office for Students (OfS).
In one recent case, a university told the OfS of suspected “academic misconduct” involving a majority of the 1,389 students enrolled through one of its franchised providers. As a result the SLC recovered £6m in tuition fees.
The NAO said: “Lead providers have few incentives to detect abuse of the student loans system in franchised providers since they benefit financially from increasing student numbers. Where it has identified weak governance, OfS has not yet named the lead or franchised providers.”
Susan Lapworth, chief executive of the OfS, said: “It is essential that student loan funding provided by taxpayers is properly protected. Higher education institutions have obligations to comply with the rules that underpin the student loans system and to meet the OfS’s wider regulatory requirements.”
A spokesperson for Universities UK, which represents university leaders, said: “While universities already have policies in place to ensure that all partnerships are undertaken responsibly, this report shows that there are significant and serious issues still to be addressed.”
