Students who went bankrupt but carried on paying off their student loans are to be paid back a total of £75,000.
About 200 students will get the cash they paid back - plus interest - as the government moves to close a loophole which they say allows graduates to dodge their debts.
Announcing the plan, Higher Education Minister Margaret Hodge said it had always been the government's policy that people could not try to avoid paying off student loans by declaring themselves bankrupt.
But the government has been told by the Insolvency Service that student loans are on the list of
debts that can be cancelled by bankruptcy.
So it has told the Student Loans Company to give back loan repayments made by 198 bankrupts.
In a written statement to MPs, Mrs Hodge said: "It has become clear that
under current legislation, students loans are written off on bankruptcy.
"We will be amending our legislation so that
graduates will have to continue repaying their student loans even if they
declare themselves bankrupt and we hope to do so as soon as possible.
"Graduates should not see bankruptcy as an easy route to repaying the money
they have borrowed through the generously subsidised student loan system."