Following an investigation into student loan fraud, in January 2024 the National Audit Office (NAO) made recommendations to improve how franchised higher education providers are regulated in England. These providers deliver higher education courses on behalf of universities and colleges.
The Public Accounts Committee has since launched an inquiry into student loans given to those studying at franchised higher education providers.
This Insight explains how franchised higher education providers are regulated and the NAO’s findings.
Regulation and funding in higher education
Higher education providers in England must register with their regulator, the Office for Students (OfS), to access public funding, award degrees and recruit international students, and for students to be eligible for tuition fees and maintenance loans.
To register, providers must meet initial and ongoing conditions of registration, showing their ability to provide quality higher education and ensure financial sustainability and good governance.
Higher education in England is mostly funded by public grants from the Department for Education and tuition fees from students. The balance of these two income streams for providers has increasingly shifted to tuition fees, as the chart below shows.
Franchising and access to loans in higher education
A university or college might enter a franchise partnership with another educational provider to improve access to their courses and get additional tuition fee income.
Students studying on a course run by franchised providers enrol with the lead provider (the college or university). Franchised providers do not receive any grant funding, and so their main source of income is tuition fee payments passed on by the university.
If the lead provider is registered with the OfS, then students at the franchised provider can apply for tuition fee and maintenance support from the Student Loans Company.
The number of students studying a course run by a franchised provider has increased, especially over the last three years, as shown in the chart below.
How are franchised providers regulated?
Franchised providers can register with the OfS themselves but are not required to do so, and instead can access the registration benefits through their lead provider. Of the 355 franchised providers operating in 2021/22, 229 (65%) were not registered with the OfS. The NAO has suggested this may “weaken” their understanding of the Department for Education’s regulatory framework.
Lead providers registered with the OfS retain ultimate responsibility for their franchise partner’s compliance with conditions and standards for any courses delivered on their behalf.
Lead providers are also responsible for the accuracy of a franchised provider’s student recruitment and attendance data, which is used by the Student Loans Company to ensure all student loan funding is paid out appropriately.
NAO investigation into student finance at franchised providers
The NAO investigated franchised providers following instances of student loan fraud identified by the Student Loans Company and the OfS since 2022 and reported its findings in January 2024. Its report highlighted several regulatory issues.
Potential fraud and abuse of loans
In early 2022, the Student Loans Company found potential student loan fraud at 10 franchised institutions, and in response the Government instructed it to stop paying tuition fees to those providers.
Investigations found that fraudulent applicants were enabled by a lack of oversight by lead providers. This led to Individuals receiving student loan funding without intending to complete a course.
The Student Loans Company identified potential fraud, possibly associated with organised crime, through suspicious activity such as inconsistent personal details, applications made through certain agents, and applicants not meeting the admission criteria.
Where fraud was suspected, lead providers had to confirm an applicant had enrolled before receiving funding. Government funding has been partially reinstated to the 10 providers, but some individual cases remain blocked.
The NAO found that student loan fraud at franchised partnerships was disproportionately high. In the academic year 2022/23, only 6.5% of students receiving student loans were studying at franchised providers. However, 45% of all student loan applications suspected of fraud were for franchised providers, accounting for just over half of the value of fraud, as shown in the table below.
Use of recruitment agents
Recruiting students, particularly international students, can be competitive and costly, and so many universities use agents to help meet their intake targets. Agents can also help prospective students choose a suitable course and provider, and navigate the application process.
While some providers have signed up to an industry-led UK Agent Quality Framework, the use of recruitment agents is unregulated.
The NAO said that because recruitment agents generally work on commission, they were incentivised to recruit students who may be inappropriate for higher-level study. Such students might be vulnerable to being mis-sold loans, and less likely to repay them.
In June 2023, the New York Times reported that commission-based recruiters for Oxford Business College, which has several partnership deals with OfS-registered universities, recruited students with a low level of English, and were encouraged to push a message of “get paid to enrol”.
Teaching quality
In July 2023, the Secretary of State for Education, Gillian Keegan, said franchise arrangements were “acting as a potential route for low quality to seep into the higher education system”. She said the Department for Education would work with the OfS to consider franchising arrangements in the sector.
The NAO investigation referenced reports that some providers rejected from the OfS register for not meeting standards were currently delivering courses through franchise arrangements.
Attendance concerns
The Student Loans Company grants loans to franchised providers based on assurances from the lead provider that students are attending and engaged in their course. The Government Internal Audit Agency has identified this as a key risk in student loan fraud.
In a blog post from October 2022, the OfS said it had seen “passive and reactive” approaches to assuring student attendance, with lead providers assuming that students are attending courses unless they actively withdraw.
NAO recommendations to improve regulation
The NAO made several recommendations for improving how franchised higher education is regulated, including:
- The Department for Education should “explicitly” consider the risks involved with franchised providers and how such risks will be managed.
- The Department for Education should take a “systems-based approach” to scrutiny and oversight, and set out clear responsibilities for itself, the OfS , and the Student Loans Company for mitigating student loan fraud and abuse.
- The OfS should increase awareness of the risks of franchise partnerships and share good practice for student recruitment and data self-assurance with providers.
On 18 January 2024, the Student Loans Company responded to the NAO report and said it “routinely” monitors suspicious activity and requires registration and attendance confirmation before releasing funding. It said it was “essential” that universities meet their regulatory obligations to ensure fair access to student funding.
About the author: Siobhan Wilson is a researcher in the House of Commons library, specialising in higher and further education.
Charts were produced by Paul Bolton, who specialises in higher education statistics.
Photo by by Pp0912 on Wikimedia Commons
