Nearly 130 students from the privately run Edinburgh School of Business have paid up to £5500 each to take the qualification, allowing them and their families to enter the UK on a student visa.
However, The Herald has discovered the business diploma, which was developed by a member of college staff, is not currently recognised by any official education body.
The licence of Edinburgh School of Business to bring in overseas students has also been suspended after an inspection by the UK Borders Agency.
When inspectors visited they found the college was not keeping proper attendance records, which allowed some students to sign for others who were not turning up to courses.
The students -- who come from as far afield as Pakistan, India, Nepal and Bangladesh -- agreed to pay such large sums of money because they believed the Advanced Diploma in Business was about to be accredited by the Scottish Qualifications Authority (SQA).
Some of the students also believed that, on gaining the diploma, they would be able to progress on to the final year of a business degree at Glasgow Caledonian University.
However, inquiries by The Herald have revealed that, although the SQA is considering the qualification for approval, it has not yet done so. Crucially, the SQA said that students embarking on the qualification before it is given accreditation cannot be awarded it retrospectively.
In addition, a spokeswoman for Glasgow Caledonian said a senior member of staff in its business school had had discussions with the organisation, but they had no official link with it and “did not have any plans to establish one”.
The college, which is based in a business park in Niddrie, is now facing legal action from some of the students involved, who say they have been misled.
Serious concerns have also been raised over why the SQA entered into discussions with a college that was only set up last year and does not have a proven track record.
The reputation of Scottish education and use of the SQA logo are both key selling points for private colleges wishing to bring in overseas students, but public colleges are concerned that proper checks are not in place to ensure such material is not given out inappropriately.
Last night, Gordon Wright, principal and one of the owners of the Edinburgh School of Business, defended its operation. “The SQA has been in the process of accrediting this course and that is exactly what we told students,” he said.
“In addition, we have had talks with senior academics from Glasgow Caledonian about taking our students and, again, that is exactly what we told our students.
“It is very concerning to me that these organisations are now backing away from us in this way, but we would stress that, if students have been disadvantaged, then we will do everything in our power to help them achieve the qualifications they came to Scotland for.”
A spokesman for the SQA said: “The school asked us, as an organisation which can credit-rate courses, to look at its Advanced Diploma in Business course. This work is ongoing. It would be entirely inappropriate for student expectations to be raised as to what the rating might be in advance of that process being completed.
“Additionally, a claim to have successfully completed such a credit-rated course could only be made by students who undertook their study after the credit rating had been confirmed.”
The spokesman said he would be raising the matter with the Edinburgh School of Business “as a matter of some urgency”.
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