Ineligible foreign students handed more than £5m in student loans

Investigation followed a huge surge in applications for financial help from European Union nationals

More than £5m has been handed out in loans to foreign students who were not entitled to them, an investigation has revealed.

An inquiry by public spending watchdog the National Audit Office shows that 992 overseas students were handed Government loans for which they were ineligible. All were said to be studying at private higher education institutions.

The payments came to light after an investigation prompted by a huge surge in applications for financial help with living costs from European Union nationals - in the main from Romania.

Labour MP Margaret Hodge, who chairs the influential Commons public accounts committee, described the £5.4m agreed in loans to ineligible students as “incredible”.

The report also showed that, of just over 11,000 applications, half could not or would not provide evidence they were eligible for the support.

As a result, the Department for Business, Innovation and Skills suspended payments and ordered 23 colleges to halt recruitment amid fears the system was being abused.

Today’s report also found a substantially higher drop-out rate amongst private providers: 20 per cent compared to just four per cent in the state-funded sector.

“This extraordinary rate of expansion, high drop-out rates and warnings from within the sector ought to have set alarm bell ringing,” said Ms Hodge.

“As Government hands more and more taxpayers’ money to private companies and institutions to deliver services for the public good, we have to be able to follow the taxpayers’ pound where-ever it is spent.”

Stricter controls over the granting of loans have now been put in place by the Student Loans Company.