More than £5bn paid out in student loans is unaccounted for because the Government does not have enough information about the recipients.
There are 368,000 student borrowers for whom there is no current employment record, or other details on earnings, according to a study by spending watchdog the National Audit Office (NAO).
This could be because they are unemployed students living in the UK, EU students who have returned home or UK students who have moved overseas.
It means the Government does not have enough information to decide whether these students should be making repayments on their loans, and if so, how much.
The NAO report claims the Business Department (BIS) is not doing enough to find out whether borrowers are earning enough to start repayments.
Students currently repay their loans when they earn £21,000, and repayments are linked to earnings.
It also says there are around 14,000 former students, with a total debt of £100m, living overseas who are behind on their repayments.
The Student Loans Company, which helps collect the payments, could take a "more targeted approach" to this group, says the NAO.
Earlier this week, the Government sold off older student loans totalling nearly £900m to a private debt collection agency for £160m.
Universities minister David Willetts called the sale "good value for money" and said it would help reduce public sector debt.
More than a third (35%) of new loans taken out are not expected to be repaid, according to Government figures, and around half of students are not expected to repay their debt fully.
Under a major overhaul of higher education, which saw tuition fees at English universities treble to a maximum of £9,000, student loans are now written off after 30 years.
A BIS spokesman said: "We are continually improving the collection process for borrowers and we will carefully consider the NAO's recommendations as part of this programme."
Shadow Higher Education Minister Liam Byrne said: "Labour has warned ministers time and time again that tripling fees overnight would create huge new debts that lots of students, facing a cost-of-living crisis, couldn't afford to pay back.
"Worse of all, we may be at the point where so many students loans are being written off, that the government's new student finance system is actually more expensive than the old arrangements, even though the government is asking students for three times as much money."
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