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Student loans system wide open to fraud with risks to students and taxpayers

24 April 2024

  • PAC report warns of lack of transparency about student outcomes and teaching quality from franchised providers

A lack of government oversight has left the student finance system open to exploitation from systemic and organised fraud and abuse. In a report published today, the Public Accounts Committee (PAC) warns of a lack of oversight of ‘franchised providers’ – institutions providing courses on behalf of universities as part of a commercial partnership, or franchise.

In 2022/23, detected fraud involving franchised providers totalled £2.2 million, 53% of the £4.1 million fraud identified by the Student Loans Company (SLC). Two-thirds of franchised providers are not registered with the Office for Students (OfS), which sets conditions for registered institutions designed to protect students, assure quality, and ensure good governance. The PAC’s inquiry found that the responsibility to tackle fraud and abuse of student funding is not fully embedded in ways of working at the OfS, SLC, and the Department for Education.

The growing use of franchised providers presents risks to for students. Some higher education providers rely on franchising growing student numbers to remain financially viable. Numbers of students at franchised providers more than doubled between 2018/19 and 2021/22, to 4.7% of all students, The OfS told the PAC’s inquiry that it was shocked by the high amount of tuition fees retained by providers using franchisees (up to 30% 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 report further finds that a lack of transparency means students do not have the information they need to make well-informed decisions about their studies. Some franchised providers have course completion rates as low as 60%, compared to 90% across the higher education sector, but OfS does not publish data in a way that distinguishes between lead and franchised providers. Some students may even be unaware that they are at a franchised provider, as well as how much of their tuition fees a franchisee will receive, or which of the main institutions’ services they can use, such as welfare services.

Deputy Chair's comment

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.”

Further information

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