Student finance system "open to fraud" according to Parliamentary report

The cross-party Public Accounts Committee (PAC), which draws on the work of the National Audit Office (NAO) to examine value for money on Government projects, programmes and services, warns of the risks presented by a lack of oversight of student finance schemes.

According to the new report the growing use of so-called “franchised providers” presents risks to students. Franchised providers are educational institutions providing courses to students on behalf of another lead institution with whom students are usually enrolled.

Universities or colleges might enter a franchising agreement with each other in order to improve access to their courses and get additional tuition fee income.

In 2022/23 more than half of the fraud detected by the Student Loans Company (SLC) involved franchised providers, totalling £2.2m. Two-thirds of franchised providers are not registered with the Office for Students (OfS), which sets conditions designed to protect students and ensure quality and good governance. There is currently no obligation for educational institutions to be registered with the OfS.

In January the NAO suggested a lack of engagement with the OfS may “weaken” educational institutions’ understanding of the Department for Education’s regulatory framework.

Larger numbers of educational institutions a reliant on entering franchising agreements in order to maintain economic viability, with students at franchised providers doubling between 2018/19 and 2021/22 to represent 4.7 per cent of all students. Evidence submitted to the committee’s inquiry by the OfS told how they were “shocked” by the high amounts of tuition fees retained by franchisees, with incentives to make a profit causing spend on students to be reduced.

Among the report’s conclusions are that “the current regulatory system does not ensure sufficient oversight over franchised providers,” and that “roles and responsibilities for fraud prevention, detection and intervention are undefined.”

Sir Geoffrey Clifton-Brown MP, Deputy Chair of the Committee, said: “A back door into the student loan system for organised fraudsters has been left hanging wide open here by the lack of oversight by government.

“Fraud involving franchised providers now makes up a little over half of all fraud identified by the Student Loans Company. Our Committee’s scrutiny has now long established that tackling fraud cannot be left to the experts, but the fight needs to be prioritised and led from the top.

“These issues must be addressed with some urgency, as the use of franchised providers only looks set to grow. Indeed, concerningly, the franchising out of education seems to be viewed by some providers as a way of underpinning their finances. The risk to the taxpayer from unchecked fraud is clear, but the systemic risks to the quality of education provided to students must also be taken in hand. Shockingly, up to 30% is retained from tuition fees by lead providers under the franchise system without students necessarily knowing it’s happening. We hope the recommendations in our report help the Government ensure transparency and robust oversight of the whole sector.”