Student loans vanish

Thousands of university students were today warned they face starting their courses with no cash.

The money, to pay for books, rent and living costs, has disappeared within a new centralised computer system designed to process loan applications. As a result many local education authorities are facing a huge struggle to get loans to students in time for the new term.

Emergency plans have been drawn up to help get interim payments to those affected while they wait for their applications to be processed. But first-years have been barred from the emergency scheme because of the fear of fraud.

Today LEAs called on the Government to make all students eligible, while one warned of "meltdown" in the system once A-level results come through.

The Government, meanwhile, was publicly trying to wash its hands of the crisis. As councils struggled with a backlog in applications, the DfES said: "This is a matter for the Student Loan Company." The Glasgow-based agency was set up by the Government to administer financial support for students.

But an internal DfES email seen by the Evening Standard reveals that officials held crisis talks last week with the SLC and representatives of local education authorities.

It acknowledges that in some authorities, there can be no guarantee that loans will be processed in time, even for students who applied before the official deadline of 2 July.

Every year sees a rush of fresh applications at the end of August from students who have achieved better than expected A-level results.

Where loans cannot be calculated in time, the DfES email - dated Tuesday - suggests that students could be given a third of the non-means-tested element immediately as an interim payment for the first term.

All are entitled to 75 per cent of the maximum loan. The rest, which can total up to £4,095 in London, depends on financial circumstances. The email says the amount could then be readjusted. But it adds: "For technicalreasons, and in order to minimise the risk of payments being made to students not entitled to them, however, it has been decided that this contingency can be applied only to renewing students." Today LEA leaders called on the Government to take urgent action to guarantee that all students receive their loans.

Councils - which handle a total of 800,000 applications every year - first reported major computer problems in June, ranging from frequent crashes to slow processing and inaccurate calculations. Last month a survey of all LEAs showed that more than nine out of 10 had problems.

In Wandsworth processing is taking an average of nine weeks instead of the normal three. Education chairman Malcolm Grimston warned it expected "meltdown" after Alevel results.

Sir Sandy Bruce-Lockhart, leader of Kent County Council and chairman of the Local Government Association, said: "What we need is a clear statement from the DfES that all students ... will be guaranteed the loan to which they are entitled."