Computer bug leaves students facing loans crisis

Thousands of students are facing a cash crisis amid mounting delays in processing loans.

Local authorities are grappling with a massive backlog of applications for student loans because of computer glitches.

They fear thousands of undergraduates will not receive their money in time for the start of term.

Local education authorities in London are particularly badly affected, with some areas taking up to three times the normal period to process forms. There are fears that the crisis will deepen after A-level results come through next week. Many schoolleavers-wait until they have a confirmeduniversity place before applyingfor loans leading to a late surge in applications.

All students not living at home are entitled to apply for about £4,000 a year. Many need the money for tuition fees, books, food and rent. The bills must often be paid as soon as students reach university, making it vital that loans are received on time.

The backlog is blamed on a £30 million new computer system, brought in to replace 172 separate claims systems used by local education authorities across England and Wales.

Councils - which handle a total of 800,000 applications every year - first reported major problems with the system in June. The problems range from frequent crashes to slow processing and inaccurate calculations.

In Wandsworth, where 4,000 students have applied for loans, processing is taking an average of nine weeks instead of three.

Senior councillor Malcolm Grimston is warning that the system faces "meltdown" after A-level results, with a further 1,400 loan applications expected. In a letter to Higher Education Minister Alan Johnson, Mr Grimston said: "Local education authorities are well aware of this late surge and the council's concern is that with the existing backlog of applications, this rush will completely overload the system and these students will have to wait until well into the term before they receive the loan."

Other London boroughs which have reported serious problems include Lewisham and Kensington and Chelsea.

The Government is under intense pressure to help those who do not receive their loans on time to find the money to tide them over. Councils say all students who filed applications before the 2 July deadline should get the cash on time. There are no guarantees for those who did not submit their forms by then.

Sir Sandy Bruce-Lockhart, chairman of the Local Government Authority, has appealed for contingency funding. He said: "It is clearly another example of a centralised system not being properly tested."

A spokeswoman for the Education Department said today: "The Student Loans Company will find ways to help those whose loans do not come through by the start of term."