Margaret Hodge, chair of the Public Accounts Committee, said she had asked the National Audit Office to compile a report.
The University and College Union blamed David Willetts, the universities and science minister, for failing to heed warnings about the expansion of for-profits.
The government has allowed private and for-profit providers to expand their numbers of students with public-backed loans without any restrictions on their student numbers. Nearly £1 billion will be paid out to students at private providers by the Student Loans Company next year, up from just £30 million in 2010.
Times Higher Educationhas reported that two for-profit providers, GSM London and St Patrick’s International College, received £11 million in public-backed funding for their teaching via the SLC in 2012-13 – more than the London School of Economics.
THE has also reported how St Patrick’s, which has more than 4,000 students on SLC funding studying sub-degree level higher national certificate (HNC) and higher national diploma courses (HND), is owned offshore by a holding company registered in the Netherlands.
Multinational education company Pearson has also profited from the expansion of private providers in England. Last year, THE reported that a quarter of private college courses newly designated by the government for student support were HNC and HND courses validated by Pearson, rather than degree courses validated by universities.
The lack of controls on spending meant that the Department for Business, Innovation and Skills has had to wrestle with a major overspend at private providers, which is likely to be one factor behind recent cuts in funding to publicly-funded universities and support for disadvantaged students.
Ms Hodge told The Guardian on expansion at private providers: “You’ve just got to look at the [growth] figures. The red light ought to go on immediately.” The newspaper has found that classes on at one for-profit provider recently tripled in size, yet the classes were running with few students.
Ms Hodge said that BIS’ civil servants would have to “account for why they allowed this loose system to exist; why they didn’t see any of the warning lights.
“I will ask the comptroller auditor general to prepare a report for my committee on the basis of which I will take evidence.”
Sally Hunt, the UCU general secretary, said: “We met with David Willetts time and again to specifically warn him about the dangers of handing out more state-backed loans to private colleges to cover their students’ fees. There were no quality control checks in place and no limits on the number of students they could recruit.
“The minister must explain why he ignored our warnings. We fear the government’s enthusiasm to create a market in higher education may have blinded them to the risks.”
Ms Hodge said she regretted not taking action on the concerns raised by Ms Hunt and the UCU. “We didn’t take her allegations seriously enough at the time,” she added.
THE revealed in 2011 how thousands of students at private colleges were already accessing taxpayer-backed student loans for courses designated by BIS, with figures at that time showing more than £25 million had been borrowed since 2006-07 when top-up fees were introduced.