Some 10,000 students and former students who were accused of fraud by student finance body Duo on the basis of a discriminatory algorithm are to be refunded by the government.

Education minister Eppo Bruins said on Monday he had allocated €61 million to pay back students who were accused of lying about living away from home and subsequently lost grants.

The scandal came to light in June 2023 when broadcaster NOS and news website Investico said students with ethnic minority roots were “noticeably more often” accused of student loan or grant fraud than other students.

NOS and Investico spoke to 32 lawyers who had represented students accused of lying about where they lived. Of the 376 cases the lawyers were involved in, 97% involved students with ethnic minority roots.

Students who live away from home are entitled to a higher grant and between 2012 and 2023, almost 27,000 students were visited by officials to check up on where they were living. Nearly 10,000 of them were actually accused of fraud.

Duo had used an algorithm to look for potential fraud since 2012 based on potential risk indicators such as age and education, and trained using the “experience” of Duo investigators. Once a suspect has been identified, Duo fraud investigators decide if they should be checked out.

For example, youngsters who live with family members, such as a brother or aunt, form a potential risk, even though they are entitled by law to a grant as a live-out student – some €200 more a month than for home students.

Vocational college students were also considered to be more likely to commit fraud.

The claims were so serious that the then-education minister Robbert Dijkgraaf commissioned the “far-reaching” investigation into the way student finance body Duo carried out the checks. He also called a halt to the use of the algorithm.

Bruins said that he did not want students who were fighting the decision to stop their grant to end up in a legal minefield.  “As a cabinet, we want to learn from previous repayment processes, such as the child benefit scandal,” he said. “This is why we are refunding students.”

Since 2015, student grants had only been available for students from low-income households and students at vocational training colleges (mbo) but they were reintroduced for all students last year.