Government begins privatisation of student loans

The sale of £4bn student loans, made to over 450,000 students and first eligible for repayment between 2002 and 2006, has sparked controversy.

The debt will be sold as bonds to investors, a system that is often used in the United States to sell off student debt to debt-buyers. The government expects a return of £12bn by 2021 from the sale without any changes to the terms and conditions for student borrowers.

Universities Minister, Jo Johnson, has assured that there would be no impact to those that hold the loans. In addition, the government has agreed that borrowers will continue to deal with Her Majesty’s Revenue & Customs and the Student Loans Company and graduates will not be directly affected by the sale.

A written statement to parliament led Johnson to commit to “bringing public finances under control” and making sure the sale represents “value for money for the taxpayer”.

However it is unclear how “value for money” will be guaranteed, or indeed how it is defined. And despite Johnson stating that there would be no direct effect on current students, it remains difficult to analyse the future of student loans and repayments following this sale.

Martin Lewis, the founder of a financial expertise website, has expressed concern over this plan and the consequences that may abound as a result of this. Lewis said: “It is a question of ‘watch this space’ to see if their rhetoric is matched by their delivery”. This leaves students and graduates alike in a state of uncertainty regarding their student loans.

Previous sales of student loans have been criticised for causing many issues to both the borrower and the UK taxpayer. Vince Cable in 2014 discarded an earlier plan as he believed that the sale was pointless and would not reduce government debt as it intended.

The sale of pre-1998 student loans to Erudio, a private debt-buying company, led to borrowers receiving letters requesting payment even though they didn’t earn the repayment level, as a result of administrative errors. Countries including Australia have also considered selling off student debt but decided not to go through with it amid opposition from graduates.

NUS vice-president Sorana Vieru has criticised the sale, stating that “bankers will profit off the backs of graduates”. She believes that students and graduates will suffer as a result of this process.

Nick Hillman, Director of the Higher Education Policy Institute, commented that the sale “has been a long time coming” despite the student movement opposing any sale in recent years.

Reassuring those concerned about changes to their loan, he said: “The terms and conditions have to be nailed down at the point of sale because otherwise the buyer has no idea what it is they are buying and will not part with their money.”

He added that public discussion of the sale was “plagued by misinformation”, saying: “The public debate on terms and conditions is in the realm of alternative facts.”

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