MPs condemn student loans firm `blunders'

A powerful group of MPs yesterday castigated the Department of Education and Employment for a series of serious errors in setting up the company to run the Government's loan scheme for students on university, polytechnic and higher education courses.

The Commons Public Accounts Select Committee, which carries a majority of Conservative members, used unusually strong language in its report on the troubled six-year history of the Student Loans Company.

At the same time, in the appendix at the back of the committee report, it was revealed that the financially squeezed, state-owned company had also been hauled over the coals by the National Audit Office, the public finance watchdog, for making charitable donations. Officials at the Department knew about the donations but as soon as the NAO discovered them, the company was told to stop giving taxpayers' money away. Such donations, warned the NAO, were not allowed under Government accounting rules.

Around 35,000 students suffered delays averaging six weeks in receiving their cheques from the company. When they tried to chase their money, they could not get through, since the switchboard was permanently jammed.

Out of 1.1 million attempted phone calls, only 45,000 succeeded in getting through, something the MPs said they "deplored". They rejected the company's explanation that installing extra telephone lines would have taken too long to solve the problem.

The company had an independent "assessor" to deal with customer complaints. He was paid a retainer of pounds 8,000 a year and in four years only one case was referred to him. The committee said it was "concerned" that his pay was "unrelated to his caseload".Bizarrely, the company's own internal study had identified "fundamental weaknesses in planning and decision- making" yet it ploughed on, regardless. The committee said it was "concerned that so little effort was made to assess the risks involved in a major new initiative".

Members were "dismayed" that student representative bodies were not consulted about the scheme before it was set up.

It was vital, said MPs, that the DFEE took a firmer grip of the company, especially since the catalogue of blunders meant the original plan to transfer the organisation to the private sector had been temporarily shelved.

Under the revised plan, the company continues as before, with banks and other financial institutions also being encouraged to give loans. The committee said this "twin-track" approach "had introduced considerable uncertainty into the company's corporate planning". It recommended officials "enhance their monitoring of the company during this period."

At present the company reckons on writing-off pounds 15m worth of loans where students have defaulted. MPs warned the company "there was no room for complacency" in this area and stressed that in their eyes, a student who borrowed money, then avoided repaying the loan,had committed fraud.