Prisoners have been paid student grants and loans totalling £730,000 while taking university courses in jail, the Government admitted yesterday.

The figure is almost three times higher than MPs were told last month.

More than a hundred inmates exploited a loophole for a decade to get loans and maintenance grants even though they were already being housed and fed at taxpayers’ expense.

John Denham, the Secretary of State for Innovation, Universities and Skills, told MPs yesterday that 154 prisoners had been paid £730,000 since 1998 under a “long established but unjustifiable provision” that was halted at the end of last month.

He said that 44 prisoners had received cash during the current academic year but payments had been stopped. In a written statement to MPs, Mr Denham said that a Student Loans Company review found 154 prisoners received £570,000 in maintenance loans and £160,000 in grants.

There were fewer prisoners involved than previously estimated when the loophole came to light last month, Mr Denham said.

“At the time I made my statement on February 7, preliminary investigations suggested that approximately 250 prisoners had received up to £250,000 in maintenance grants since 1998. There is also evidence of some maintenance payments made to prisoners between 1990 and 1998.”

Mr Denham added that the review showed assessments had been carried out in line with the existing rules.

The loans are repayable once graduates reach a £15,000 salary threshold. However, critics said that much of the cash would have to be written off since many inmates could not repay it.

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