Extent of graduate loan arrears revealed

Graduates have fallen more than £186m behind in their student loan repayments, new figures show.

The Student Loans Company (SLC) statistics show £186.3m worth of loan repayments were in arrears by the end of the 2005-06 financial year.

Students and graduates owed nearly £18.7bn in loans built up over recent years, including those that were not yet due for repayment.

The SLC gave figures for two types of loan: the old system of mortgage-style loans and the new "income contingent" loans.

The mortgage-like loans involve graduates repaying the debt themselves every month - through direct debit, for example. For the new, income-contingent loans, employers usually deduct repayments automatically from graduates' pay.

Most of the loans in arrears were for the old, mortgage-style arrangement, which the new system replaced in 1998.

The Conservative higher education spokesman, Boris Johnson, told the BBC the figures showed a worrying rise in debt cancellation.

Mr Johnson said: "[Cancellations] have gone up by almost 60% on last year, to £5.6m."

"With the variable fees coming in this year, there is a real risk of moral hazard if students and families believe these debts will simply be purged by the state. Too much debt cancellation will increasingly be seen as unfair on those families that do struggle to pay. We must make sure that the debt burden is bearable."

However, the higher education minister, Bill Rammell, told the BBC that student loans were a "world away" from commercial loans, with repayments linked to monthly income rather than debt.

Mr Rammell said: "Student loans only charge interest at the rate of inflation, so graduates will not be penalised for taking longer to pay off their loan or for taking time out to have a family or a gap year."

The Liberal Democrat education spokeswoman, Sarah Teather, said: "The government doesn't seem to be taking the long-term impact of their tuition fees policy seriously. This generation of young people faces an unprecedented burden of debt, which is going to effect their ability to buy homes, start families and save for old age.

"Today's twentysomethings face serious financial problems because of student debt that their parents never encountered. It's a real worry that debt levels are so huge even before higher fees kick in.

"This should be a timely reminder to politicians who glibly talk about lifting the cap on fees that their policies have serious long-term implications for a whole generation's financial security."