The National Audit Office has highlighted major flaws in student loan system in a recent report.

According to the National Audit Office (NAO), the Student Loans Company (SLC) did not achieve value for money in 2009 due to major problems in the processing of applications.

In a report published today, the NAO stated that there were major flaws in the system and predicted future delays in the delivering of funds to students.

The Student Loans Company took over the processing of loan and grant applications for new students in England from local authorities in 2009.

Among the main problems was the lack of communications between the company and students and the fact that less than 50% of new applications were fully processed by the start of term.

According to the report, the company’s document scanning system was not fully tested before it was launched and the SLC’s contingency plan was flawed and implemented late.

The SLC took 33% longer to process applications for 2009-2010 compared with the local authorities in 2008-2009. The company also experienced a dramatic increase in the number of phone calls, with 87% going unanswered.

Mr Amyas Morse, Head of the National Audit Office, said: “The Department for Business, Innovation and Skills and the Student Loans Company underestimated, and therefore did not do enough to mitigate, the significant risks in integrating the student finance service previously carried out by 130 separate local authorities.

“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 […] They will have to manage substantial risks.”

The centralisation of the student loans process had been hoped to streamline the system and save money. While it is expected to save around £20 million a year, the NAO claim the benefit is greatly outweighed by the continued poor service of delivering over £5 billion to students.

In response to the report, Ralph Seymour-Jackson, Chief Executive of SLC, said that they welcomed the insight from NAO and commented: “We deeply regret the problems that students experienced last year.

“This was the first year of a three year process to centralise student finance in England and I would like to reassure students and parents that lessons have been learned.”