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Government ‘left door to student loan fraud hanging wide open’

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Public Accounts Committee report calls for better oversight of franchised courses

Inadequate oversight from the Westminster government has left a back door to student loan system abuse ‘hanging wide open’, according to the House of Commons Public Accounts Committee.

In a report into franchised higher education provision published on 24 April, the crossbench group of MPs said that a “lack of government oversight…exposes the student finance system to exploitation from systemic and organised fraud and abuse”.

Franchised courses generally involve institutions operating in partnership with registered universities to deliver courses on their behalf—and can be a source of additional fee income for institutions. Earlier this year, the National Audit Office found that 53 per cent of the £4.1 million in fraud identified by the Student Loans Company in 2022-23 was at franchised providers, even though franchised degrees account for only 4.7 per cent of the student population in England.

The committee has called on the Department for Education to “strengthen direct and indirect oversight of franchised providers” in order to ensure they meet “the standards expected for an organisation receiving taxpayers’ money”.

The MPs say this could include requiring all franchised education providers to register with the Office for Students and strengthening the powers of the OfS and the SLC where they have concerns.

Geoffrey Clifton-Brown, Conservative MP and deputy chair of the committee, said that franchising offers a “back door into the student loan system for organised fraudsters”, which has been “left hanging wide open here by the lack of oversight by government”.

“These issues must be addressed with some urgency, as the use of franchised providers only looks set to grow,” he added.

A spokesperson for the Department for Education said that all higher education institutions in receipt of government funding “must provide value for money for the taxpayer and we will not hesitate to act if we see 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,” they said.

A spokesperson for the SLC said the company “takes financial crime seriously and…we will continue to take action to protect public funds wherever possible”.

Regulatory role

Meanwhile, the PAC report also raised concerns about the proportion of franchise student tuition fees that go directly to the franchising institution—as opposed to the institution at which they are studying.

The report states that the Office for Students told the committee it was “shocked” that some franchising providers retain up to 30 per cent of fees in some cases. “This raises quality concerns, as if a university takes a fee percentage and a franchisee generates a profit, the amount spent on students is reduced,” the MPs point out.

“Within the next 12 months, the OfS should publish a more systematic overview for the higher education sector, sharing its insights on where providers have adapted their delivery models and the emerging risks providers then need to manage,” the committee says.

England’s regulator should also set out what proportion of tuition fees lead providers could be seen as reasonably retaining in relation to the student services they remain responsible for, and it should “consider these financial arrangements in the scope of any investigations it carries out into the quality of franchised provision”, it adds.

Susan Lapworth, chief executive of the OfS, said the report highlighted “a number of important issues relating to higher education courses delivered through franchise arrangements”.

“Student loan funding provided by taxpayers must be properly protected in these circumstances,” she said. “The OfS will continue to use its regulatory powers to help ensure value for money for students and taxpayers, and to make sure that universities have effective oversight of courses delivered by their partners.”

Lapworth said that students on franchised courses were “entitled to expect a high-quality education and positive outcomes”, and that the OfS will place “particular emphasis on these partnerships in the next phase of our regulation of quality”.

A version of this article also appeared in Research Fortnight