The Government's plans to privatise student loans suffered another blow this week as it emerged that all four of the major high street banks are likely to reject the scheme.

Midland Bank became the first to announce its reluctance to back the proposals when its director and chief executive, Keith Whitson, told the National Union of Students the bank had been "unable to define a commercially acceptable framework" for privatised loans under the Government's conditions.

The official position of the other three big clearing banks, Lloyds, Barclays and NatWest, is that they are still in talks with the Government on the proposals. But insiders said that they were all on the verge of reaching the same conclusion as Midland.

Replies to letters from the NUS to banks and building societies found widespread doubts. Tony Warren, managing director of NatWest, said the bank was "looking at this issue carefully" but added: "Certainly there should be no supposition that we will automatically become involved."

ÖйúAƬ

The Bank of Scotland, the Woolwich Building Society, and the Bradford and Bingley Building Society, indicated they were unwilling to take part in the scheme.

Mr Whitson told the NUS that Midland Bank had been "unable to resolve a number of concerns" over the Government's proposals on issues such as "administrative complexity, risk identification, profitability and customer reaction".

ÖйúAƬ

The news came as the Student Loans Bill, introducing the Government's plans for a "twin-track" system of state and privately-backed subsidised loans, entered its committee stage.

Eric Forth, ÖйúAƬ minister, revealed that the Department for Education and Employment had ruled out linking loans repayments to the National Insurance or tax system due to "fundamental objections in principle", despite claims that this would give banks the security they needed to back the scheme.