Franchise students are involved in more than half the student loan fraud detected in the U.K. (Pic: ... [+]
The student loans system in the U.K. is vulnerable to organized fraud and abuse, according to a committee of MPs.
A lack of government oversight of ‘franchised providers’ — private institutions offering courses on behalf of mainstream universities — mean the system is open to exploitation, with millions of pounds at risk, the cross-party group warns in a new report.
And they are calling for greater regulation and more transparency to help prevent fraud and protect students from being exploited.
“A back door into the student loan system for organized fraudsters has been left hanging wide open here by the lack of oversight by government,” said Sir Geoffrey Clifton-Brown, deputy chair of the Public Accounts Committee, which produced the report.
“These issues must be addressed with some urgency, as the use of franchised providers only looks set to grow.”
Franchising has one of the biggest growth areas in higher education in recent years, with universities licensing private providers to teach courses on their behalf.
The number of students at franchised providers more than doubled between 2018/19 and 2021/22 and now make up almost one in 20 students in the U.K.
For students, franchised providers offer another route into higher education, while for universities they offer financial security.
But more than half of the fraud identified by the Student Loan Company (SLC) — some £2.2m ($2.7m) in 2022/23 — involved franchised providers.
Among the techniques used by fraudsters identified by the SLC were the use of false documents, identity theft, and the involvement of organized crime.
But MPs found that neither the SLC nor the Department for Education, or the independent regulator the Office for Students (OfS), had properly embedded the responsibility to tackle fraud and abuse.
A spokesperson for Universities UK, which represents higher education institutions, said franchised partnerships allowed many students to access a university education for the first time, and while there were processes in place to oversee these partnerships, the report identified possible areas for improvement.
The committee also raised concerns about the risks to students, after an investigation by the National Audit Office found that completion rates for some courses were as low as 60%, compared with around 90% in higher education as a whole.
Almost two thirds of franchise providers are not registered with the OfS, which is responsible for protecting students’ interests and ensuring courses are of sufficient quality.
And the committee also warned that with some universities retaining up to 30% of tuition fees, this could reduce the amount spent on students.
“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,” Sir Geoffrey added.
Among the committee’s recommendations are for greater transparency over franchise agreements, including completion rates and the proportion of funding universities retain, to help students make more informed decisions.
The Department for Education should also strengthen oversight of franchise providers in an attempt to tackle fraud. One option could be to require franchisees to register with the OfS, MPs said.
OfS chief executive Susan Lapworth said students on franchised courses were entitled to expect a high-quality education.
“The OfS will place particular emphasis on these partnerships in the next phase of our regulation of quality,” she said.
A DfE spokesperson said all higher education providers in receipt of Government funding must provide value for money for the taxpayer, and they not hesitate to act if they saw malpractice of any kind.
“We’re already taking action to crack down on poor-quality providers, and we’re making clear that those that use franchising understand their responsibilities and have strengthened our data-sharing rules,” the spokesperson said.
An SLC spokesperson said they took financial crime seriously and worked closely with the DfE and OfS to protect public funds.
