Student loans are taken into account as income whether or not the client has actually applied if they could take reasonable steps to acquire it ( Reg 64(3) ). My client did not apply as she does not want to increase her indebtedness and is working ( and hence able to finace her studied through this ).

Has anyone discovered a way round this or do I have to put it to her MP that this is a ridiculous law ( especially in the current climate and needs changing?

There is an IS CD where it was found that the provision was absolute and not ultra-vires - CIS/2174/2005 (on Rightsnet I think). Assuming the wording is more or less the same for IS as for HB/CTB (I haven't checked), the CD will be binding on HB/CTB.

There is a logic to this too, I'm afraid. The client is effectively saying "I don't want to borrow money, I'd rather you gave it to me".