The Department for Business, Innovation and Skills and the Student Loans Company have been criticised by the public sector auditor after thousands of students were left to start term without their loans last autumn.

In a report published today, the National Audit Office says the service provided to new students in England who applied for finance for the 2009-10 academic year failed to deliver value for money, going over budget by ?8 million. The watchdog also criticises the increase in average processing times for applications, which rose by a third.

The report finds that in September 2009, when students were desperately trying to contact the SLC about their loans before term started, 87 per cent of calls went unanswered.

The government transferred responsibility for loans to the SLC from local authorities with the aim of saving money. In 2009-10, it introduced the new system for first-year students only.

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The NAO report says that BIS ¡°did not monitor the SLC effectively¡±, adding: ¡°It accepted the company¡¯s over-optimistic view that it would deliver a good service in 2009, and it was not aware of difficulties with processing applications until it followed up a specific complaint from a customer at the end of August.¡±

Edward Leigh, Conservative MP for Gainsborough and chairman of the Public Accounts Committee, said the SLC was ¡°an organisation in chaos¡±.

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¡°Having chaired the committee for eight years, I have seen my fair share of public administration failings,¡± he said. ¡°But I must say that the litany of shortcomings in this instance is particularly appalling.¡±

In 2009-10, the average time taken to process applications was a third longer (12.4 weeks) than in 2008-09, when the process was still overseen by local authorities, the report finds.

In November, two months after the start of term, 5,600 applicants who had applied before the administrative deadlines in April and June had still not been paid.

Amyas Morse, head of the NAO, said: ¡°The question must be asked how the company, given its failure in 2009, will deal with twice as many applications in 2010, when it becomes responsible for applications from both first- and second-year students.¡±

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BIS announced today that it has commissioned consultancy firm PricewaterhouseCoopers to carry out an ¡°independent health check¡± to ensure that the SLC is on target for next year.

David Lammy, higher education minister, said: ¡°It is clear that the service offered by the SLC last summer fell well short of expectations. It is important that we can be confident that students and their families receive the service they deserve from the SLC throughout the rest of this year.¡±

john.morgan@tsleducation.com