A BANK boycotted by students for being "unethical" is among those bidding to buy the student debt.
Student unions have been advising their members not to use Midland Bank for the past six years, claiming it has a poor record in helping to cut debt in third-world countries.
But in future students could find themselves forced to repay thousands of pounds to Midland.
HSBC Markets/Midland Bank emerged this week as one of 20 potential buyers of the first Pounds 1.6 billion slice of the loan book now being sold by the Government.
Louise Clarke, spokeswoman for the National Union of Students, said: "Many student unions have a policy against Midland Bank." She said the union's main concern was that graduates would not face tougher repayment terms following the sale.
At least two other bidders, Barclays Bank and Natwest Markets, are judged "unacceptable" by the Ethical Investors Group, which advises clients concerned about how their money is used.
Karen Eldridge, head of client services at Eiris, the Ethical Investment Research Service, said: "Potentially there would be ethical concerns with quite a few of these companies."
She said students may object to the vast sums of money paid by the stockbroking companies to their employees, as well as being critical of some of the banks' third-world and environmental policies.
The sale process will continue next year when another Pounds 1.5 billion of debt goes on to the market. It will apply to existing loans and, under current plans, will continue to be administered by the government-owned Student Loans Company. The Government will subsidise non-repayment and the below-market interest rate.
Charles Keay, director of N. M. Rothschild & Sons, which is advising the Government on the sale, said: "Each of the prequalifiers we have selected has been looked at in terms of the financial and technical ability to do this transaction. Clearly one takes into account the standing of a financial institution in looking at that. They are all reputable organisations which consider their position very seriously."
He said the impact of the sale on students would be minimal.
The successful prequalifiers are: Barclays Bank/BZW, Beneficial Bank, Clydesdale Bank, Credit Suisse First Boston (Europe), General Electric Capital Corporation, Goldman Sachs International, HSBC Markets/Midland Bank, JP Morgan Securities, Morgan Grenfell & Co, Morgan Stanley & Co International, Natwest Markets, Nomura International, PaineWebber, Paragon Group, Sallie Mae, SBC Warburg, Smith Barney, Sumitomo Bank, UBS, and Varsity Funding.
Each will have to make indicative bids by October 3 1997. From these, the government will select three or four candidates to go through to the next stage.