The Department for Education and Employment has admitted that it has been unable to sell off its pound;10 billion student loans debt to the private sector.
The admission, made during an education and employment select committee meeting this week, led to accusations of a government cover-up.
Nick Sanders, the DFEE's director of higher education, said the third tranche of sales was being deferred. He confirmed that the department could not get satisfactory terms for the sale.
This led to speculation that the loans are not being recouped.
Nick St Aubyn, Conservative MP for Guildford, said: "What emerged today is that the Government was planning to raise billions of pounds from the sale of the student loans book. They halted the process. If the Government is not getting the money in that it expected from student loans it may affect the funding of higher education in the future."
He said the information about the deferral had not emerged before and was a part of a cover- up: "The Government has realised that it's done a lousy deal for the tax payer."
Lib-Dem committee member Phil Willis has called for a ministerial statement on the loan debt sell-off. The DFEE has completed two tranches of loan debt pay-offs, selling to clearing banks. The debts were worth pound;1bn and pound;2bn, and a government source said the revenue contributed towards Labour's extra pound;800 million education spending.
In future, student debts will be collected directly by the Inland Revenue.