Bank makes a bid for privatised student loans

Students will be able to take out privatised loans for the first time from next October, ministers announced yesterday.

Barclays Bank and two other financial institutions have bid to become the first private institutions to offer student loans.

Their decision will come as a relief to the Government which said earlier this year that it was postponing the introduction of the scheme after the banks appeared unenthusiastic about taking part. They feared it would make them unpopular with student customers.

Critics said there would be a two-tier loan system with the banks offering loans to students whose prospects were good and the Government's loan company catering for the rest.

Legislation to allow private institutions to offer loans was passed recently. The government-financed student loans company will continue to offer loans alongside the banks.

Barclays promised to speed up the loan-dispensing process but said applicants would have to be Barclays customers.

Allan Silverman, managing director of Barclays consumer lending, said: "Eligibility criteria, repayment terms and interest rates would be the same as for loans offered by the Student Loans Company, but funds would normally be available within five days of the bank receiving the completed application form - far quicker than at present."

Eric Forth, minister for higher education, said: "I very much welcome the decision of three financial institutions to tender. Our objective throughout has been to increase the loans choices available to students and the quality of service they receive."

Barclays has held talks with the National Union of Students and modified its proposals accordingly. Douglas Trainer, the NUS president, said the union was opposed to the current loans scheme and to privatised loans operated under the current system. However, he welcomed the concessions Barclays had made to ensure that its proposals would offer students a better service.

The Student Loans Company said that it used postal applications and loans were available to all students.

"There are no avoidable delays in this process," a spokesman said. "We note that it will be possible for Barclays to provide a faster and more convenient service to the customers they select."

Ministers now have to decide which tenders to accept. Up to four institutions can be selected.

The Government tried to set up a privatised loan scheme seven years ago but the banks pulled out. The present scheme was set up in 1990.