The reports from the Sunday Times investigation into so-called ‘franchised’ universities, which has uncovered what could be industrial-scale defrauding of the student loan system, is shocking. But it should not, hand on heart, be surprising.

And whilst the fundamental root of the problem may well be New Labour’s conscious decision to drive up the number of young people going to university, the more proximate cause is actually the decision by the Coalition Government to abolish the cap on student places in 2015.

The decision was defended in the usual way: not only did it bolster institutions’ bottom lines, but it also broadened access, i.e. made it easier for even more people to go to university.

Of course, that latter point is only a good thing if you believe at once that a) everyone who goes to university profits by it, an increasingly dubious proposition given the decaying value (and high variability by degree) of the graduate premium, b) that any premium represents value created (and not a 2:1 increasingly being simply a licence-to-practice for white-collar work), and c) that this value is adequate payoff for the taxpayer’s investment.

But even setting those fundamental questions to one side, the danger of the new order ought to have been obvious. Universities now had every incentive to enroll as many students as possible, and no particular incentive to ensure they made anything of – or even received – the education ‘they’ (we) were supposed to be paying for.

Moreover, with universities claiming to make a loss on domestic students even on the cheapest courses due to the cap on fees, they suddenly had a clear incentive to bring in as many international students as they possibly could.

As we noted in 2023 when we looked at this in detail, this would be a problem even if every student was genuine. The current population of overseas students is larger than the population of Glasgow, and its uneven distribution means it contributes to acute local housing shortages in places such as York. More importantly:

“…if the Russell Group’s modelling is accurate, and the electorate doesn’t discover a sudden enthusiasm for actually paying for things, then universities’ reliance on the mass import of international students to cross-subsidise domestic students is only going to ratchet ever upwards. How many Glasgows is it worth to keep the sector afloat – two? Three?”

The fraud uncovered by the Sunday Times puts a spotlight on another aspect of the issue. Normally, international students can’t access student loans or other support; problems there tend to be more about efforts to game the immigration system, what Neil O’Brien described as the ‘Deliveroo Visa Scandal’.

People with permanent residency, however, can – and this country, that is trivially easy to get. There may be little point in claiming a student loan, which is paid directly to a university. But so long as you leave before having to repay it, any maintenance grant is basically just free money.

It is at least good that the DfE, Office for Students, and Student Loan Company spotted the suspicious activity and began to investigate.

But they are presented with an impossible task. All the incentives of the bodies they are supposed to regulate point in entirely the opposite direction. Moreover, as universities continue to cut costs and lay off in-house staff, reliance on external private providers is only going to increase.

At the other end, the politicians are also pulled in two directions. Doubtless much concern will be professed about fraudulent students and cowboy providers, just as it sometimes is about poor-quality degrees and the decaying graduate premium. But in the end, all are simply symptoms of the same problem: determination to prop up a hugely expanded university sector with no idea how to make it financially sustainable.

The first choice was using state credit and Klarna’s deferred-payment model to sell mortgages to 18-year-olds; then it was the unlimited import of overseas students. Franchises are just the latest innovation inspired by the overwhelming imperative to keep the cash flowing at all costs. Barring a fundamental shift in how the sector is organised, they won’t be the last.

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