The government’s public spending watchdog has named a number of private colleges in a scathing report that raises concerns about dropout rates in the sector and “ineligible” students claiming public funding.

The investigation by the National Audit Office into controls over public-backed funding at private providers comes after the coalition government began a policy to expand private provision, led by David Willetts during his time as universities and science minister.

Funding from the public-backed Student Loans Company for students at private providers has grown from £30 million in 2010 to what the government projects will be £900 million this year.

Senior figures in the traditional university sector fear that such growth could squeeze the rest of the higher education budget.

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The NAO report, published on 2 December and titled , names five private colleges as accounting for half the total growth in SLC-funded student numbers between 2011-12 and 2013-14.

Those five colleges are St Patrick’s International College; London School of Business and Finance (both owned by Global University Systems); private equity-owned GSM London; the British Institute of Technology and E-commerce; and the UK College of Business and Computing.

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The NAO also lists 10 private providers with dropout rates above 20 per cent in 2011-12 or 2012-13. Among them are the London School of Science and Technology (the subject of an undercover report by The Guardian earlier this year), ICON College of Technology and Management, Regent College (no connection to Regent’s University London), LSBF and the UK College of Business and Computing.

The NAO says that its dropout data cover “only those students who drop out during their academic year”, and not students “who simply do not return for the next year”.

‘Potentially ineligible applicants’

And the NAO report also looks at the results of an investigation by the Department for Business, Innovation and Skills into non-UK European Union students who “claimed or attempted to claim student support they were not entitled to”, which was prompted by concerns that some were applying for maintenance support without meeting residency rules.

Those private institutions with the highest number of “potentially ineligible applicants” listed by the NAO are: St Patrick’s (691), Regent College (497), UK College of Business and Computing (492), ICON College of Technology and Management (435) and LSBF (340). GSM London also features among the 16 listed by the NAO, with 160 “potentially ineligible applicants”.

The NAO says that BIS “concluded that, without evidence to the contrary, it could not hold the providers responsible for claims made by their students”.

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A spokesman for LSBF, which is named in each of the three lists, said that the dropout data included in the report were “misleading and unreliable”. He also said the SLC’s definition of “potentially ineligible students” includes “applicants it initially deemed to be eligible and to whom it made payments, even though the institution they named on their application had not supported the application and did not enrol them”.

The coalition abandoned its original plans to introduce a higher education bill that would have subjected private providers to a regulatory “level playing field” with universities.

Margaret Hodge, the chair of the Commons Public Accounts Committee, said the NAO report showed that BIS “went ahead with its reforms to expand the role of private colleges without ensuring there were controls in place to ensure that taxpayers’ money was used for its intended purpose of supporting higher education and not for private gain”.

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But Nick Hillman, director of the Higher Education Policy Institute and a former special adviser to Mr Willetts as minister, said: “I don’t think ministers took unreasonable decisions in the early days of the government.”

He added: “But equally, it is a shame the coalition, as a whole, didn’t come forward with higher education legislation.”

Mr Hillman argued that it was wrong to argue that coalition ministers had been “doing an enormous amount of liberalisation”, and that the framework for designating private provider courses for SLC funding left by Labour meant that “numbers were always going to grow”.

The PAC will hold a hearing on the NAO report on 15 December, where figures it has asked to attend include Rod Bristow, president of Pearson UK. Pearson’s Edexcel exam board validates the Higher National qualifications that have seen the highest growth in student numbers at private colleges.

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john.morgan@tesglobal.com