About 44 billion yen in student loans extended by a government-affiliated foundation is expected to become irrecoverable.

The Board of Audit of Japan told the Japan Scholarship Foundation on Thursday to figure out how to deal with the losses, adding that the figure might rise amid the economic slump, sources said.

The auditing board warned the foundation, currently a public corporation, that the losses will occur when it becomes an independent administrative institution in April, they said.

The foundation has estimated debts of more than 85 billion yen for fiscal 2001, using accounting standards employed by private firms. The board's estimate, however, was the first compiled by an external institution for irrecoverable student loans.

The foundation said that, as of March 2002, it had 1.55 trillion yen in outstanding loans, of which 156.2 billion yen were nonperforming and had passed repayment deadlines.

Based on the amount of nonperforming loans, the auditing board calculated that an estimated 44.4 billion yen cannot be collected. Other loans that have not yet reached repayment deadlines are also expected to become irrecoverable.

The board urged the foundation to re-evaluate the bad loans and check on the financial status of students' guarantors to improve recovery rates.

The foundation has its roots in a body that was established in 1943 to extend loans to needy students wanting to pursue higher education.

As of the end of fiscal 2002, it had extended some 5.54 trillion yen to roughly 6.76 million people.

The foundation operates on borrowings from the general account of the state budget and the fiscal investment and loan program, as well as recovered loans.