David Willetts has threatened legal action against any private colleges found to be “complicit” in £8 million of funding wrongly paid to European Union students.

The universities and science minister published today a on publicly-funded maintenance support for continental EU students at private providers.

His statement raises the prospect that there has been fraud in the claiming of Student Loans Company funding by some students at private providers, and possibly by some for-profit colleges themselves.

The admission of incorrect payments will also expose the government to scrutiny over its ability to regulate private providers.

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Mr Willetts also said there would be a “sampling exercise” to “investigate whether similar issues exist at publicly funded higher education providers”. Any investigation of funding for EU students is likely to worry universities, who say they have already seen their recruitment of non-EU students squeezed by government immigration policy.

In November 2013, the government suspended funding for all EU students at private providers in receipt of maintenance support, requiring them to supply evidence of their eligibility to receive maintenance funding.

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EU students are required to have been resident in the UK for three years in order to receive maintenance support via the SLC.

Mr Willetts said today: “Of the 11,191 students who we asked for additional residency evidence, 1,333 (12 per cent) received a payment but were either unable to or chose not to demonstrate that they had been in the UK for the three years prior to the start of their study.

“Around £65 million was due to have been paid out to these individuals. As a result of our prompt action only £8 million was actually paid.”

Raising the prospect of fraud, Mr Willetts continued: “We have taken immediate action to recover these sums and already have recovered around £2.5 million. Work continues to recover the rest including using debt collection agencies, court action, and if we find evidence of fraud, we may prosecute those involved.”

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And, significantly given the government’s drive to encourage for-profit providers, he added: “If any higher education provider is found to have been complicit in this, we will take the action against them directly.”

Mr Willetts continued: “In alignment with the Cabinet Office Fraud, Error and Debt Taskforce appointed by the Prime Minister, we will carry out a fraud and debt review which will look at: the resilience of the entire student finance system; how we respond to fraud; and the powers the Department of Business Innovation and Skills, Student Loans Company and partners have to tackle fraud.”

john.morgan@tsleducation.com