More than 100,000 students are still waiting for their education maintenance allowances, as the Learning and Skills Council (LSC) this week rushed to complete its rescue bid for the scheme.

Thousands of applications were being transported across the country to Capita’s three processing centres, after the LSC last week axed its contract with Liberata following “unacceptable” delays.

There are 26,000 applications still outstanding, while many more are stuck in the gap between receiving a notice of entitlement and claiming the first of their Pounds 30-a-week payments.

David Hughes, the LSC’s regional director for London who was brought in to troubleshoot the situation last month, said some of the delay for these students was unavoidable since they also had to be processed by their colleges. But he admitted that the payments system set up by Liberata was faulty.

Mr Hughes said Liberata’s automated computer payments had never got off the ground and the company had to hastily create an interim system. He said the LSC would be working with Capita to improve the arrangements.

“In the past few weeks we have moved quite quickly in terms of applications processed and people starting to get paid,” Mr Hughes said. “We want to accelerate that.”

But he declined to give a date when the crisis would be resolved. “We are not 100 per cent certain what we will find when Capita take over the contract,” he said.

Mr Hughes rejected claims, made on BBC2‘s Newsnight last week, that Liberata made it clear that it would be unable to meet the contract as far back as October 2007. He said: “We have never seen any such report or notice.”

Liberata is believed to have been paid Pounds 20 million from the Pounds 80 million, six-year contract, but a source with knowledge of the terms said the company was likely to have made a loss due to the need for hiring an “extraordinary” number of extra staff to cope with the backlog.

“There is no way it has made any money, it’s lost a significant amount,” the source said.

The company did not receive a financial penalty for the failings because of concern about the consequences for its provision of other public sector contracts, according to the source.

Richard Webster, acting chief executive of Liberata, said last month that the company was financially robust and could afford the penalty but urged LSC not to demand it.