Credits and Loans

Asset sale puts student loan debts up for grabs

| |
No comments

A consumer rights campaigner has raised the alarm over the revival of a plan to sell batches of student loans to private investors.

The Treasury said that it would start selling loans made to students in England who graduated between 2002 and 2006 as part of a four-year programme of sales that could raise up to £12 billion.

Gordon Brown first proposed selling the loan book and legislation to authorise this was passed in 2008, but did not go ahead. The coalition also tried but was blocked by the Lib Dems.

Ministers said there would be no change to graduates’ repayments or the terms and conditions of their loans. However, Martin Lewis, founder of the Money Saving Expert website, said the sale of pre-1998 student loans, which are managed by Erudio, owned by an asset management company, had been “near-disastrous” for many graduates.

“Issues such as wrong deferment forms, wrong processing of forms and most crucially, loans being put on to credit reports, caused much distress for many people,” Mr Lewis said. He said that ministers had assured him the same would not happen again, but he remained concerned.

The attraction to the government is that refinance student loans are not counted as part of the deficit for accounting reasons, but their sale would yield a windfall of up to £12 billion, which could be used to reduce borrowing. However critics raised concerns about the value for money of their sale.

Nicholas Barr, professor of public economics at the London School of Economics, said that loans issued before 2012 had generous subsidies which would reduce their sale price and added that income-contingent loans had unpredictable repayment patterns.

Professor Barr said: “I have been urging government for 20 years to sell income-contingent debt in small tranches. It is open to question whether the price for which the government can sell student debt represents good value.”

Jo Johnson, the universities minister, said: “This government is committed to bringing public finances under control. 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 and will only proceed once we are satisfied that it represents value for money.”