The government is considering erasing the student debt of thousands of former public servants with children under the age of 17.

Workers who borrowed thousands of pounds under the Public Administration (Student Loans) Regulations 2003 would have their loan repayments clawed back under proposals by the Finance Bill which is currently before the House of Commons.

A spokesperson for the Department for Education confirmed to the Guardian that it was mulling over the plans but it was too early to comment on how many people would benefit from the change.

The bill is being referred back to the House of Lords, where it is expected to have a much longer winding-up.

Paid for while working for the Home Office, a number of state schoolteachers and other senior public servants have debts of around £40,000 to their name.

A teacher who worked for a government statutory body and who was owed £16,891 under the regulations told the Guardian: “I am absolutely gobsmacked and baffled by this. I would have thought it was too common for new graduates to be left paying off the debt. It would be a big blow to low-paid workers who are already struggling with the rising cost of living.”

Under the Education and Employment Act, large amounts of unemployment benefit are withheld from employment status from public servants.

A government spokesperson confirmed the draft Finance Bill would propose modifying the process for debt repayment to exclude current public service workers with children.

In the last report on public workers’ debt repayment, published in May 2009, the government determined that “no taxpayers’ money should be spent, on behalf of the country, on repaying a student loan which has been defaulted on. The government therefore would not support the extension of a separate debt payment structure for public service employees who have children under 17, the vast majority of whom are of pensionable age”.

A source in parliament revealed the bill was being looked at by Michael Gove, the education secretary, in August.

The bill would add yet another layer of bureaucracy to that which public servants are already subject to, particularly for those who worked in the public sector. The Parliamentary Public Service Committee estimates that public service workers in England and Wales have more than 50,000 outstanding jobseeker’s allowance orders, with the payback mechanism a total of £780m.

This article is published by Guardian Professional. Join the Guardian Public Leaders Network free to receive regular emails on the issues at the top of the professional agenda.