A third of students who have taken out student loans are not earning enough to pay them back, ministers have admitted.
Amid worry that more graduates will struggle to find jobs because of the credit crunch, it was revealed that nearly 400,000 graduates have not made a single repayment on their loan up to seven years after they left university.
Commenting on the figure, Stephen Williams, the Lib Dem spokesman for universities, told the Guardian: "As the financial crisis worsens the burden on new graduates is going to be even greater."
Senior figures at the National Union of Students (NUS) have expressed concern that the era of cheap loans has all but disappeared, with the current rate of inflation standing at 4.8 per cent.
According to official figures published by the Liberal Democrats, 384,300 graduates out of 1,237,300 who still had money outstanding on their loans had not begun repaying them at all.
Some ministers have said that the student loans system does not appear to be working, as the financial return on the £20,000 debt most students graduate with has been too slow to arrive.
