A lack of Government oversight of franchised higher education providers has left the student loan system open to fraud and abuse, MPs have warned.

Franchised providers – institutions that operate in partnership with registered universities to deliver courses on their behalf – create “risks” for taxpayers and students, the Public Accounts Committee (PAC) said.

Some higher education providers may be incentivised to increase student numbers through franchising to “remain financially viable”, according to the report by the cross-party group of MPs.

Teaching quality and student welfare at franchised providers remain the responsibility of lead providers, but the PAC is “not convinced” all providers fulfil these responsibilities well.

Figures show the number of students enrolled at franchised providers more than doubled between 2018/19 and 2021/22 – from 50,440 to 108,600.

But a “lack of transparency” about student outcomes, teaching quality and arrangements with franchised providers means students do not have the information they need to make well-informed decisions, the PAC said.

The report called it “extraordinary” that some lead providers have retained up to 30% of tuition fees received for courses at their franchised providers.

It warned: “With franchised providers also taking profits, a significant proportion of student funding may not be spent on giving students the best possible university experience and better educational outcomes.”

Recruitment agents used by some providers may not make it clear what students get for their money, or they may not ensure students enrol on the most suitable courses, the group of MPs said.

The PAC said: “A lack of Government oversight over these providers exposes the student finance system to exploitation from systemic and organised fraud and abuse.”

It comes after a National Audit Office report found that 53% of the £4.1 million fraud detected by the Student Loans Company (SLC) was at franchised higher education providers in England in 2022/23.

The PAC’s inquiry into franchised higher education providers found that the responsibility to tackle fraud and abuse of student funding is “not yet fully embedded” in the ways of working at the Department for Education (DfE), Office for Students (OfS) and SLC.

Sir Geoffrey Clifton-Brown, deputy chairman of the PAC, said: “A back door into the student loan system for organised fraudsters has been left hanging wide open here by the lack of oversight by Government.”

He added: “These issues must be addressed with some urgency, as the use of franchised providers only looks set to grow.

“Indeed, concerningly the franchising out of education seems to be viewed by some providers as a way of underpinning their finances.

“The risk to the taxpayer from unchecked fraud is clear, but the systemic risks to the quality of education provided to students must also be taken in hand.

“Shockingly, up to 30% is retained from tuition fees by lead providers under the franchise system without students necessarily knowing it’s happening.”

The group of MPs has called on the DfE to set out requirements for higher education providers to publish summaries of their franchise agreements, including the proportion of funding they retain and for what purpose, and for the OfS to publish student outcome data for individual franchised providers.

A Universities UK (UUK) spokesperson said: “Franchised partnerships are an important part of our higher education ecosystem, allowing many students to access university education for the first time, and universities provide a wide variety of support to their franchise partners and students in return.

“Universities have processes in place to oversee these partnerships, but this report identifies possible areas for further improvement.

“UUK is working with GuildHE and the Committee for University Chairs to develop a new governance framework to help the sector strengthen and secure these relationships.”

A DfE spokesperson said: “All higher education providers in receipt of Government funding must provide value for money for the taxpayer and we will not hesitate to act if we see malpractice of any kind.

“We’re already taking action to crack down on poor-quality providers, and we’re making clear that those that use franchising understand their responsibilities and have strengthened our data-sharing rules.

“We are working closely with the Office for Students and the Student Loans Company to identify and prevent any abuses of public funds.”

An SLC spokesperson said: “We take financial crime seriously and, working closely with DfE and OfS, we will continue to take action to protect public funds wherever possible.”

Susan Lapworth, chief executive of the OfS, said: “Students studying on franchised courses are entitled to expect a high-quality education and positive outcomes, and the OfS will place particular emphasis on these partnerships in the next phase of our regulation of quality.

“We will continue to work closely with the Department for Education and the Student Loans Company on these important issues.”