According to a research by the National Audit Office, student loan fraud involving £60 million in financing at unregulated institutions in England could benefit organised crime due to insufficient oversight.
The public spending watchdog stated that there had been “several instances of potential fraud and abuse” at private higher education providers, which offer courses leading to degrees issued under franchise by mainstream institutions as part of a commercial agreement.
Some providers are claimed to enroll students who have little or no interest in completing a study but are eligible for government-backed maintenance loans of up to £13,000. The provider can receive £9,250 in tuition fee loans, with a portion of that being remitted as a franchising charge of up to £3,000 per student to the degree-granting university.
In other circumstances, agents are offered high incentives to sign up pupils. The Student Loans Company (SLC), which oversees the loan system for the government, identified fraud in the form of organized crime, identity theft, and fraudulent documents.
This Thursday, the House of Commons’ public accounts committee announced a probe into franchise regulation.
In reaction to the NAO report, committee chair Meg Hillier stated: “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.
According to Chris Larmer, CEO of the SLC, the organization checks applications for suspicious activity and confirms student registration and attendance with providers before releasing money.
According to the NAO, although accounting for only 6% of loan recipients in England, franchise students accounted for more than half of all loan fraud discovered by regulators last year.
The number of full-time franchise students in England has increased from 30,000 in 2018-19 to over 90,000 in 2022-23. This is due to mainstream universities entering into franchising agreements with commercial alternative providers, which are not regulated by the sector’s watchdog, the Office for Students (OfS).
In one recent case, a university informed the OFS of suspected “academic misconduct” involving the vast majority of the 1,389 students registered through one of its franchised suppliers. As a result, the SLC reclaimed £6 million 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.”
