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 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.
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.
The figures are likely to be seen as 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.
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.”
Qualifi, an Awarding Organisation providing Higher Education Ofqual regulated qualifications supports the work of those seeking to expose this issue, address the root causes and ensure organisations and individuals abusing the system are taken to task. It is in the interests of students to have available more affordable, high-quality alternative HE education pathways with Top Up to degree options and we must ensure that this is not undermined by the problem raised. Qualifi conducts robust checks on those seeking approved centre status, the identity of students registered on courses and in line with the regulator’s Conditions of Recognition. There are policies and procedures available which seek to ensure security, including centre staff Conflict of Interest and Register of Interest Declarations, Whistle-blowing and Companies House checks on the owners of privately owned Alternative Provider centres.