High-speed internet links between the Student Loans Company and education authorities will be in place by 2002, as part of a bid to reduce application processing time.
The initiative is part of the Treasury's invest-to-save budget, which promotes innovation in the public sector. Speaking at its launch, secretary of state for education and employment David Blunkett said he hoped the proposal would "save money and make life easier for those applying".
Students will also be able to download or update their student loan application forms from the web, although they will still have to print the form out, fill it in and post it off in order to benefit fully from the streamlined process.