In Depth

Government to 'privatise' millions of student loans

Minister Jo Johnson says sell-off will have 'no impact' on borrowers, but critics remain sceptical

The government has begun the process of selling more student loan debt to the private sector in an attempt to raise £12bn to pay down the national debt, the universities minister announced yesterday.

Jo Johnson said that loans made to students in England between 2002 and 2006 will be put up for sale, followed by pre-2012 loans later. 

He added there would be "no impact" on student borrowers paying off loans, as terms and conditions would remain the same after the sale was completed.

Critics, however, were sceptical, saying the government has already moved the goalposts once on student loan repayments, says The Guardian

That came in November 2015, when former chancellor George Osborne announced he would freeze the threshold at which post-2012 student loans were repaid at £21,000, breaking an earlier pledge to increase the level in line with average earnings. As a result, the average graduate will pay £306 more per year by 2020/2021.

Union leaders also attacked the decision, with the National Union of Students (NUS) accusing the government of pulling an "ugly move" on students.

Sorana Vieru, NUS vice president, said: "Selling the loan book to investors is privatisation through the back door. It is outrageous that bankers will profit off the backs of graduates who took out loans because they had no other option."

 Why is the government selling off the debt?

Chancellor Philip Hammond is searching for ways to shore up the public finances in the face of ballooning public sector debt, which reached 86.2 per cent of gross domestic product in December, says The Independent.

Announcing the start of the process to parliament on Monday, Johnson said: "This government is committed to bringing public finances under control and returning the budget to balance.

"As part of this, we will look to sell assets where value for money to the UK taxpayer is assured. This sale will have no impact on people with student loans."

Nick Hillman, director of the Higher Education Policy Institute, told the BBC there was a lot of "misinformation" about the sale and said the key issue was making sure the taxpayer received good value.

He added: "What the government is doing may make some sense. Why should it keep the loans forever on its books? Why shouldn't the demand of pension funds for long-term income streams be satisfied if there are no clear losers?

"Why shouldn't we look for imaginative ways to reduce the national debt?"

Should students be worried?

Nicholas Barr, professor of public economics at the London School of Economics, told the Guardian there should be no concern to student borrowers, provided the sale of student loans does not affect the repayment formula.

However, he added, the sale does raise two concerns for taxpayers.

"First, loans issued before 2012 included an interest subsidy, correspondingly reducing the sale price of the debt," he said.

"Second, loans have income-contingent repayments, which means that – unlike conventional debt – the repayment duration is uncertain. The market has little experience of buying debt with an uncertain maturity date and will therefore price such debt conservatively."

"For both reasons, it is open to question whether the price for which the government can sell student debt represents good value."

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