Investigation into student finance for study at franchised higher education providers

Governance and oversight of franchised higher education provision needs to be strengthened following instances of fraud and abuse in the sector, according to an investigation by the National Audit Office (NAO).

The number of students enrolled at franchised providers was just 4.7% of the total student population in 2021/22, although it more than doubled in the three years from 2018/19. Franchised providers are institutions that operate in partnership with registered higher education providers, such as universities (lead providers), and teach courses on their behalf. The Department for Education (DfE) told the NAO that it recognises the importance of franchised provision, with 59% of franchised provider students in England from high deprivation areas.

In 2022/23, 53% of the £4.1 million fraud detected by the Student Loans Company (SLC) by value was at franchised providers. Students at franchised providers made up 6.5% of the total SLC-funded students. The NAO outlines how weaknesses in the control framework, recognised across government, contributed to several instances of fraud and abuse at franchised providers since early 2022. In May 2022, a lead provider disclosed to the Office for Students (OfS) that it suspected widespread academic misconduct at one of its franchised providers and was undertaking investigations. It has since terminated its franchise agreement and, following investigations in to academic misconduct, it withdrew more than a thousand students.

In a separate case, routine analysis by the SLC had identified suspicious patterns of activity involving students at four lead providers. In July 2022, OfS had asked these providers to commission independent audits of their controls around student recruitment, enrolment, and attendance. OfS told the NAO these audits had given varied levels of assurance, but that they had identified weaknesses in lead providers’ oversight of student admission and engagement with franchised providers. SLC later challenged 3,563 suspicious applications, involving students at ten providers, associated with £59.8 million of student funding, with 25% of this money still withheld as at January 2023.

The Government Internal Audit Agency reviewed the regulatory arrangements for student loans following a request from DfE. In August 2023 it concluded that neither SLC nor OfS have a formal role in relation to fraud associated with student loan payments. SLC has no powers to regulate, launch investigations, request additional data, or apply sanctions in relation to providers. OfS has powers to tackle some provider behaviour that may indirectly relate to misuse of SLC funding, but these powers do not directly relate to tackling fraud.

Almost two thirds of franchised providers are not registered with the OfS, which may weaken their understanding of the regulatory framework. The lead provider retains responsibility for a franchised provider’s compliance with these standards, so while lead providers must register with the OfS there is no legal or regulatory obligation on franchised providers to do so. In 2021/22, of the 355 franchised providers 229 (65%) were unregistered.

Students must demonstrate that they are attending their courses in order to continue to be eligible for funding, but there is in insufficient evidence that students are attending their courses, and there is no legal or generally accepted definition of what attendance means. Providers themselves determine whether students are meaningfully engaged with their course, and SLC uses this data to determine a student’s eligibility for loan payments.

Some providers use agents or pay cash bonuses to persuade students to sign up to courses. In July 2023, the Department for Education published a consultation response that said providers should establish safeguards to protect students’ interests when they are applying for courses. This included the use of agents to sign people up to courses. DfE, SLC and the OfS don’t know the extent to which lead or franchised providers use agents or financial incentives, activities which government does not prohibit or regulate. The NAO has recommended ways to strengthen the controls framework to reduce the risk of fraud and abuse associated with student loans issued to those at franchised providers. This included the DfE and OfS ‘as a matter of urgency’ reiterating to lead providers that they bear direct responsibility for the governance and management practices of franchised providers.

The NAO also recommends that the DfE established a common anti-fraud and corruption culture and risk tolerance. In addition, it urged the DfE to greater consider the inherent risks of using franchised providers and the extent to which they represent value for money.

It also recommends that the OfS should increase activity to raise awareness among lead providers of the risks and benefits associated with using franchised providers, while both the OfS and the SLC should continue to share data and testing results to identify anomalies.

Gareth Davies, the head of the NAO, said:

“Franchised higher education providers can play a role in broadening higher education participation, but weaknesses in the regulatory framework have led to fraud and suspicious patterns of activity within the sector.

“The Department for Education should set out clearly how these weaknesses will be addressed, individually and collectively by different higher education bodies. The Department for Education, Student Loans Company and Office for Students should work together to share data to investigate any anomalies and raise awareness among providers of their responsibilities as a matter of urgency.”