The Government's plans to privatise the student loans scheme were confirmed in the Queen's Speech this week. Her Majesty said legislation would be introduced to enable students to choose between private and public suppliers of subsidised loans.

The announcement means that ministers have opted for running a privately-backed scheme alongside the existing one. Such a move could take up to Pounds 1 billion out of the public sector borrowing requirement from the next academic year. The Department for Education and Employment said that the aim was for most loans to come from the private sector eventually.

The new scheme might involve reimbursement of private lenders by the Treasury making up the difference between commercial rates of interest and a fixed rate charged to students. Such incentives are likely to be included in proposals expected to be put before the banks and building societies by the DFEE within the next few weeks.

DFEE officials have been working frantically to develop a scheme which will prove attractive to private lenders, but, as The THES reported last week, bank chiefs are demanding high levels of security and good commercial rewards.

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Figures released by the DFEE on Monday showed that Pounds 1,9 million is outstanding since the student loans scheme was launched in 1990. Of 435,000 graduates with loans, 204,000 were up to date with instalments, 44,000 were in arrears and 187,000 were earning too little. Of eligible students 55 per cent had received one, compared to a take-up rate of 28 per cent in 1990. The average value of loans in 1994/95 was Pounds 1,040, compared with Pounds 390 five years ago.

The plans to privatise the scheme were condemned by the National Union of Students. Jim Murphy, NUS president, said: "We find it very hard to believe that the banks would wish to support or invest in such a scheme, which will be hugely unpopular with students and a costly investment."

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The Committee of Vice Chancellors and Principals said that its main concern was to change the present repayment system which was "fundamentally flawed'.

The Queen also said there would be legislation to reform education and training in Scotland.

The Education (Scotland) Bill will include provisions for setting up a new Scottish Qualifications Authority to take on the current functions of the Scottish Examination Board and the Scottish Vocational Education Council.