Franchising: close ‘back door’ for student loan fraud, MPs urge

A lack of government oversight has left England’s student finance system open to fraud and abuse, a parliamentary report into the franchised provision of higher education has warned.

In a study by the Public Accounts Committee (PAC) into institutions that provide courses on behalf of universities via a franchise agreement, several risks of this type of provision and potential failings are highlighted, with about half the £4.1 million student loan fraud detected in 2022-23 relating to a sector that makes up fewer than 5 per cent of students.

Highlighting areas of potential fraud, the PAC report explains how 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.

Furthermore, the responsibility to tackle fraud and abuse of student funding is not fully embedded in ways of working at the OfS, Student Loans Company and the Department for Education (DfE), it adds.

The report published on 24 April comes amid rapidly growing numbers of students on franchised courses in the UK, with numbers of subtracted students more than doubling between 2018-19 and 2021-22, to 4.7 per cent of all students, the report says.

However, the OfS told the PAC’s inquiry that it was “shocked” by the high proportion of tuition fees retained by providers using franchisees – up to 30 per cent in some cases – an issue that raises quality concerns because, if a university takes a fee percentage, and a franchisee generates a profit, the amount spent on students is reduced.

In some cases, students did not realise that they were studying at a franchised provider or that their institution was receiving a cut of their tuition fees, or which of the main institutions’ services they could use, such as welfare services.

Sir Geoffrey Clifton-Brown MP, deputy chair of the committee, said the issues raised in the report should be addressed “with some urgency as the use of franchised providers only looks set to grow”.

“Shockingly, up to 30 per cent is retained from tuition fees by lead providers under the franchise system without students necessarily knowing it’s happening,” said Sir Geoffrey, who hoped the report would “help the government ensure transparency and robust oversight of the whole sector”.

Among the report’s recommendations is that the Department for Education should require higher education providers to publish summaries of their franchise agreements, including the proportion of funding they retain and for what purpose, so that students know what this means for them.

In addition, the OfS – which has announced it will step up its investigations of the franchised sector – should also publish student outcome data for individual franchised providers, the PAC recommends. Course completion rates are currently averaging just over 80 per cent for franchised providers, with some as low as 60 per cent. However, the OfS does not publish data in a way that distinguishes between lead and franchised providers, the report finds.

The committee says that the OfS should 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”.

The DfE should also set out what it will do to strengthen direct and indirect oversight of franchised providers to ensure they meet the standards expected for a higher education institution receiving public money, the reports says.

While teaching quality and welfare for students at franchised providers remain the responsibility of lead providers, the PAC committee said it was “not convinced that all providers fulfil these responsibilities equally well”.

The DfE should work quickly to clarify what constitutes student attendance and meaningful engagement with courses amid concerns over a lack of clarity over these issues, the report adds.

Without sufficient regulatory attention, a “back door into the student loan system for organised fraudsters has been left hanging wide open”, said Sir Geoffrey, adding that “tackling fraud cannot be left to the experts, but the fight needs to be prioritised and led from the top”.

jack.grove@timeshighereducation.com