Six local education authorities are to pilot the online Student Support Direct scheme.
The £30 million scheme, which was developed by the Student Loans Company, will allow students to apply for a loan online, check the progress of their application and monitor their balance.
The funding will come from the government over five years and will be used to create a single central computer system for all users, including students, higher education institutions and LEAs.
The six LEAs involved in the pilot are Birmingham, Durham, East Sussex, Hampshire, Nottinghamshire and Waltham Forest. Also taking part is the Department for Education and Skills' European unit in Darlington, which deals with European Union students.
The online system will be available round the clock, with a helpline operating 18 hours a day.
Students will be able to register their interest when the scheme's website goes live this month. The company hopes to launch online applications in the pilot areas in March for the coming academic year, with a phased roll-out across England and Wales from April 2004.
SLC chief executive Colin Ward said security was crucial and that users would be able to access only areas appropriate to them, with students and their parents, for example, registering separately. "This electronic system doesn't mean that people can't come in by standard correspondence and telephone us," he said.
"This will be an on-top service, and will gradually extend out to Wap phones. We want to deal with the customer the way the customer wants to deal with us."
Launching the single online application system is Mr Ward's swansong as he will leave the SLC in June. He planned to work there for four years, but stayed for 13, with two extensions of his chief executive contract.
He has seen a change in attitude towards the company since its launch in 1990. "We don't get hate mail any more," he said. "We have customer satisfaction surveys that are very positive."
The loans versus grants debate may not be over, but Mr Ward said there was an understanding that the SLC was not responsible for student-support policy, and an appreciation that the company was administratively sound.
This has not always been the case. The SLC suffered its share of technological glitches, most notably a major fiasco eight years ago affecting repeat loan applications. This was compounded by the departure of the then chief executive, Ron Harrison, following allegations of impropriety.
Mr Ward was brought in as a firefighter, and was made chief executive in 1995. He wanted to move on to other projects rather than stay with the SLC until retirement and said this summer seemed like a good time to hand over to someone who could oversee the five-year development. "Otherwise, how do I get out of the place? Do I stay for the roll-out, or until the year after?
"What I undertook to do was to build up the SLC to become a robust organisation for the delivery of student support. I've got the company to a situation where it provides the platform for moving forward," he said.
The SLC has already claimed success in a pilot scheme that began this academic year, paying students in 14 institutions their first loan instalment through Bankers Automated Clearing Services rather than by cheque. This involved overcoming differences in electronic data systems between institutions and the SLC.
By December 30, more than £90.5 million had been paid out to some 86,000 students. One university calculated that it saved £20,000 by not having to issue cheques, while students got their money more quickly without having to trek to the bank. A Bacs transaction costs the SLC 0.65p compared with 68p for a cheque.
By the end of August, the SLC expects to pay 640,000 students their first loan instalment by Bacs, with an eventual annual saving of about £500,000.