Banks are sceptical over loan scheme:the queen's speech

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Education Correspondent

A question mark hung over the Government's plans to privatise student loans last night as banks expressed scepticism about taking part.

Ministers hope to save up to pounds 1bn a year by persuading financial institutions to take on most of the cost of student loans.

The existing Student Loans Company would continue to offer loans to students who wanted them, but it is hoped that the banks might be prepared to take much of the risk and expense in order to win a bigger share of student business.

Talks with the High Street banks are still continuing, but last night they displayed little enthusiasm.

The present scheme, which was launched in 1990, was originally intended to involve the banks but they pulled out because they did not believe it would be profitable.

Last night a spokeswoman for Barclays said it had not yet committed itself to the latest plans. "We have made it very clear that any arrangement to run a scheme would have to be run on a commercial basis," she said.

Other banking sources suggested last night that ministers would have preferred to hand over the whole scheme to the banks, but that they would not accept any such arrangement.

They added that the level of unpaid debt, caused by defaulters and by graduates on low incomes deferring payment, was too high. Figures published earlier this week showed that of the pounds 1.29bn so far lent to students, only pounds 70m has been repaid.

The banks would have to offer loans to students at no more than the inflation-level interest rate currently offered by the loan company. However, they might be able to offer discounts for faster repayment or repayment over a longer period than the company.

Last night David Blunkett, Labour's education spokesman, said the changes would create a "two-tier" loans system with students who were considered to be a high financial risk being forced to borrow from the loan company. What was needed was a thorough review of student maintenance, he said.

In Scotland, the Government published plans to establish a joint examinations board to offer both academic and vocational qualifications. It also plans to end requirements for local authorities north of the border to obtain the secretary of state's permission before embarking on large-scale school building projects.