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Blog - £45m in ineligible student loans sent to students at alternative ‘university’ providers, spending watchdog finds

Foreign students are targeting “private universities” in order to pocket millions of pounds in student loan payments, a report by the Government spending watchdog has suggested.

It is thought that in some cases, students receiving these payments may have dropped out of their courses without informing the lender, or failed to turn up for their course at all.

The number of students studying at the private institutions, known as alternative providers, has more than quadrupled since 2010, following a Government drive to get more students into higher education.

Their courses are currently £3,000 cheaper than universities, with students permitted to apply for loans to cover tuition fees and maintenance costs.

But a report released today by the National Audit Office (NAO) reveals that £45 million has been incorrectly paid out to students registered at alternative providers – with £36 million still to be recovered.

This includes more than £16 million paid out to European students purporting to have residency in the UK or the European Economic Area, but who subsequently failed residency checks when investigated.

It follows an investigation by the Student Loans Company (SLC) and Department for Business, which found that £5.4 million had been paid out to ineligible students from the EU in 2014 alone.

The Student Loans Company refused to provide figures on how many students had received payments after dropping out of their courses when approach for comment.

The NAO figures also include more than £9.3 million paid out to students enrolled on unrecognised courses between 2010-2014, while £1.3 million was sent to students in cases identified as fraudulent.

It is thought that scale of the problem may be far greater, with the NAO stating that it was unable to properly analyse the SLC’s accounts for the last two academic years due to “limitations” in how it records the data.

The report also found that, compared to universities, alternative providers on average have significantly higher dropout rates, with one in four students failing to graduate.

It notes that, at the worst performing provider, the dropout rate of students was five times higher than the average university.

While recognising that the Department for Education had made progress in improving standards and reducing ineligible payments, the report also criticised its lack of oversight in identifying how and why the payments were made.

Amyas Morse, head of the National Audit Office, said: “The Department is exerting stronger oversight and sanctioning under-performing providers but there remain issues to resolve, such as more timely identification of under performance and ineligible payments.”

The figures are likely to be seen as a setback for the DfE, which decided to raise tuition fees for alternative providers from £3,375 to £6,000 in 2012.

More recently, Jo Johnson has also been keen to champion the institutions, with the Universities Minister pushing to allow more providers to be given degree-awarding powers.

Speaking to The Daily Telegraph, Meg Hillier, chair of the Commons public accounts committee, last night warned that the Government was making “mistakes” in the rush to push through reforms in the university sector.

“Rushing at a pace nearly always leads to bad consequences,” she added. “And the Government is rushing to give degree-awarding powers to providers that cannot even ensure their students are staying.

“The level of fraud found is also concerning. We’ve seen in recent cases…that unfortunately without the right regulation in place this sort of thing will happen.”

Echoing her comments, Rob Halfon, chair of the education committee said that alternative providers needed to demonstrate their value for money to the taxpayer.

“While alternative providers should be supported, there is a duty to safeguard how taxpayers’ money is spent,” he added. “£45 million seems a horrendous amount of money to be misplaced, and we need to make sure that this continues to fall.”

A DfE spokesman said: “Alternative providers make a strong contribution to the UK’s higher education system, offering greater choice, diversity and opportunities for students.

“We welcome the NAO report and are pleased that it acknowledges the department’s improved regulation of the sector to ensure quality and value for money. This oversight will be strengthened further by the new Office for Students, which has regulatory powers to hold institutions to account.”