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Certain providers are enrolling students who show little or no interest in completing a course. Sasun Bughdaryan/Unsplash

Organised crime may be reaping the benefits of student loan fraud, amounting to £60 million in funding, within unregulated colleges in England due to inadequate oversight, as outlined in a report by the National Audit Office (NAO).

The illicit scheme, which allegedly involves the creation of fake student identities and the manipulation of loan disbursements, has raised serious concerns about the vulnerability of the student finance system in the United Kingdom.

NAO has highlighted "several instances of potential fraud and abuse" occurring at private higher education providers. These institutions offer courses leading to degrees conferred under franchise agreements by mainstream universities as part of a commercial arrangement.

According to the report, certain providers are enrolling students who show little or no interest in completing a course.

However, these students can still apply for government-backed maintenance loans, which can amount to a substantial sum of up to £13,000.

The provider, in turn, can secure £9,250 in tuition fee loans. A portion of this is then remitted as a franchising fee, reaching up to £3,000 per student, to the university awarding the degree.

There are also reported cases where agents are enticed with substantial commissions to enrol students.

The investigation has prompted calls for a comprehensive review of the student loan application process, with experts highlighting the need for enhanced security measures and improved verification protocols.

Instances of fraud identified by the Student Loans Company (SLC), responsible for managing the government's loan system, encompass organised crime participation, identity theft, and the use of forged documentation.

This week, the public accounts committee of the House of Commons declared its intention to conduct an inquiry into the oversight of franchise providers.

Critics argue that the digital transformation of financial processes has made it easier for criminals to exploit vulnerabilities, necessitating a swift response from authorities to safeguard the system.

Meg Hillier, the Chair of the committee, responded to the NAO report, saying: "The recent instances of fraud have unveiled substantial loopholes, including the absence of a clearly defined responsibility for enforcing anti-fraud measures across controls intended to safeguard the interests of students and taxpayers. These vulnerabilities have been exploited.

"The Department for Education needs to elucidate and reinforce these controls, fostering a culture that actively opposes fraud across the government."

Robert Halfon, the Minister for Higher Education, said: "While franchising can serve as a positive means to facilitate the entry of individuals from disadvantaged backgrounds into higher education, I acknowledge that there is more work to be done in fortifying oversight."

The impact of this fraud extends beyond financial losses, as genuine students may face delays and disruptions in accessing their rightful funds.

Higher education institutions are also urged to remain vigilant and collaborate with authorities to identify any suspicious activities related to student loans.

The number of students enrolled as full-time franchise students in England has experienced a significant surge in recent years, escalating from 30,000 during the academic year 2018-19 to surpassing 90,000 in 2022-23.

This surge is attributed to an increased number of mainstream universities engaging in franchising agreements to confer degrees in collaboration with commercial alternative providers.

Notably, these providers are not subject to regulation by the sector's overseeing body, the Office for Students (OfS).

In a recent incident, a university reported to the OfS concerning suspected "academic misconduct" involving a majority of the 1,389 students enrolled through one of its franchised providers.

Consequently, the Student Loans Company (SLC) managed to recover £6 million in tuition fees.

The National Audit Office (NAO) has pointed out that "lead providers" have limited incentives to identify abuses of the student loan system within franchised providers. This is because they financially benefit from an increase in student numbers.

Susan Lapworth, the Chief Executive of the OfS, emphasised the importance of safeguarding student loan funding provided by taxpayers.

She stated: "Higher education institutions have obligations to comply with the rules that underpin the student loans system and to meet the OfS's wider regulatory requirements."