The Glasgow-based Student Loans Company (SLC) was reported to have placed the pounds 2m contract to process loan applications in May.
Some students in Britain, seeking loans which would be considered a fortune in India, were now receiving begging letters, The Sun newspaper reported.
It said one Indian worker wrote: "I'm very poor and you're obviously very rich. Please sponsor me so I can work in England."
Workers in Calcutta were being paid pounds 1 a day to perform data processing work for the Government-owned Student Loans Company, which employs 550 people.
The newspaper quoted an unnamed SLC source as saying: "There's all hell on about this. It's clearly a bid to save cash, but it's wrong for work to be done by what is virtually slave labour."
The National Union of Students questioned the contracting out overseas of work which involved personal details about British students.
t Teachers will receive more personal security training with the help of an extra pounds 22m to be announced by the Government today. Ministers said the money will also be used to install more closed-circuit televisions and security devices in schools.Reuse content