Japan's student loan foundation is chasing billions of yen in outstanding loans despite changing its status to an "autonomous administrative unit", rather than a public corporation, in April.
Official auditors told the Japan Scholarship Foundation, which holds loans worth a total of ¥1.55 trillion (£7.64 billion), that it must manage its portfolio more diligently if it does not want unrecoverable loans to spiral out of control.
The first independent audit of the foundation found that it had non-paying loans exceeding ¥156 billion, of which 44.4 billion was deemed to be uncollectible.
Auditors told the fund that it must address the problem now or bad debt would grow because of the continuing economic slump and the lack of well-paid full-time jobs for university graduates.
They urged the foundation to check on the financial status of students'
guarantors to improve future recovery rates.
As a public corporation, the foundation had been found to have estimated debts of more than 85 billion in 2001, when accounting standards used to audit private firms were applied.
The foundation has its roots in an entity that was created in 1943 to offer loans to needy students. By the end of 2002, it had lent about ¥5.54 trillion to 6.76 million students.
The foundation operates on cash it borrows from the national budget, returns on its investments of its fund and income from recovered loans.
Most loans go to those students who attend private universities, and who pay, on average, almost twice as much as students who attend public institutions.
In recent years, private universities have expanded their financial assistance packages to students to maintain enrolments because the number of high-school graduates peaked in the mid-1990s and has been falling since.
Families distressed by the continued bad economy and unemployment have made greater use of that aid, including loans provided by the foundation.
This includes a significant increase in the number of families whose children receive aid because of the suicide of one or even both parents because of the loss of a job or personal bankruptcy.