Student loans worth £5 billion are unaccounted for because the Government has lost track of the undergraduates who borrowed the money, according to a report by the National Audit Office.
The Business Department has lost the employment records, and therefore the earnings, of 368,000 students who took the loans, the study found.
It means the Government does not have enough information to determine if these students should be making repayments - under the current system students only repay their loans when they are earning a salary of £21,000. Any outstanding debts are written off after 30 years.
The NAO said that in total this group has a debt of £5.3 billion, worth about one sixth of the national. It is probable some of the students are unemployed or have moved overseas or are EU students who have returned home, the study by the spending watchdog said.
But the NAO warned that the Department for Business, Innovation and Skills (BIS) and the Student Loans Company, which helps collect payments, are not doing enough to track down the payments.
There are around 14,000 former students - with a total debt of £100 million - living overseas who are behind on their repayments. Just 71.5 per cent of those who have left the UK are making regular payments.
According to BIS forecasts the total value of outstanding student loans will quadruple from £46 billion to about £200 billion by 2042.
The NAO concluded that as the size of the student loan book is expanding, the BIS needs to take a "More energetic and considered approach to ... achieving a high level of collection performance".
A BIS spokesperson said: "We are continually improving the collection process for borrowers and we will carefully consider the NAO's recommendations as part of this programme."
Shadow Higher Education Minister Liam Byrne said: "Labour has warned ministers time and time again that tripling fees overnight would create huge new debts that lots of students, facing a cost-of-living crisis, couldn't afford to pay back."