The British Government is in a fix. Rising public debt threatens the stability of the public finances. One solution is to sell off state assets and that includes the Student Loan Book.
The Student Loan Book is a financial asset with potential value to a buyer. The buyer would pay less than the published value of the debt and hope to recoup their investment, and make a profit, by collecting the full debt from the debtors. Students and graduates in this case.
Selling off the Student Loan Book isn’t a new proposal. In fact the legislation to enable the government to sell off the Student Loan Book was passed on the 21st of July, 2008. So why the delay? A spokesperson for the Department of Business, Innovation and Skills told me: “It’s due to the economic climate,” and “We’re committed to getting the best value for the taxpayers.” I believe the delay is down to another reason. That student debt is toxic debt. The fact that in 19 months the government has failed to find any buyers for the Student Loan Book would appear to back up this belief.
Why is the Student Loan Book toxic debt? Student Loans are a cheaper and flexible method of funding our university studies. That cheapness and flexibility also makes them very unattractive to a buyer. You don’t have to begin paying back your loan until after you’ve finished your course and you’re earning at least £15,000 a year. Plus, compare a mortgage loan book to a student loan book. A mortgage loan book is backed up by property. A student loan book is backed up by what? A graduate, their education and their ability to earn a salary. Not an asset you can recover and then sell on to pay off an outstanding debt.
So what happens if the government does manage to sell off the Student Loan Book? Well, the government has pledged that students will be no worse off. That they will not pay a higher rate of interest and the change will be transparent.
That’s not as comforting as they may think. Emily Gough, 21, a 3rd year University of Lincoln student, said: “From what I know it’s an awful idea. I fear that the interest rates will go up and the government hasn’t considered the long term effects of this policy.” She added that she knew people who had been put off from attending university over this issue.
My own opinion of the current government’s record on keeping promises is not high. I’m not confident that they’d protect the student debtors from a predatory new owner of the Student Loan Book. Nor protect students from harassment based methods of “encouraging” early repayment of loans.
One final thought. If the government does succeed in selling off the Student Loan Book will that mean there is less money coming into government to fund the next generation of students requiring loans?Tweet