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2nd December 2013

Government sells £900 million of student loans for £160 million

Debt collection company buys up student loans

The government has sold off £900 million worth of student loan repayments for 16% of their face value.

The move on Monday 25th November saw Erudio Student Loans, a consortium backed by private debt collection agencies Arrow Global and CarVal Investors, purchase roughly 250,000 student loans belonging to individuals who began their courses between 1990 and 1998 for £160 million.

The NUS president Toni Pearce stated that the sale will effectively lead to “the public subsidising a private company making a profit from public debt”.

Wednesday 20th November saw protests take place across the UK as students criticised the privatisation of the student loan book. A petition opposing the sell-off has also gathered 15,000 signatures. The fear among students is that with loans being sold off to private companies, the rates of repayment will also change.

The sell-off comes in light of the recent news that the debt which UK households are facing has risen for the first time in five years due to the pressure of student loans. The report by PwC also estimated that university students who began their courses last year will graduate with debts of £40,000-£50,000.

Fiona Edwards, of the Student Assembly Against Austerity stated, “We recognise that the privatisation of our student loans will cause interest rates to rise. We are demanding that they drop this outrageous policy immediately or expect further protests in the New Year.”

Toni Pearce claimed that, “The simple fact is that having these loans on the public books would be better off for the government in the long run.

“Selling off the loan book at a discount to secure a cash lump sum now doesn’t make economic sense.”

The government has justified the selling off of student loans for a fraction of their face value on the basis that there is currently a failure to recover many of the loans. 36% of the borrowers whose debts were bought are currently earning under the repayment threshold and 40% are not paying back their loans according to the terms agreed.

Universities Minister, David Willetts, said, “The sale of the remaining mortgage style student loan book represents good value for money, helping to reduce public sector net debt by £160m.

“The private sector is well placed to maximise returns from the book which has a deteriorating value.

“The sale will allow the Student Loans Company to focus on supplying loans to current students and collecting repayments on newer loans.”

Willetts was insistent that the privatisation of loans will not lead to former students having to pay back at higher rates than those they originally agreed to.

“Borrowers will remain protected and there will be no change to their terms and conditions, including the calculation of interest rates for loans.”

However, during a parliamentary select committee in June the Minister for Universities pointed out that, “In the letter that every student gets there are some words to the effect that governments reserve the right to change the terms of the loans.”

Furthermore, in a leaked government report last year, the proposal was put forth that the cap on interest rates for repayments of loans would have to be removed in order for the student loan book to be profitable to private companies.

Clifford Fleming, Campaigns Officer for the University of Manchester, said,“The government’s accounting on the loan book has been disastrous and the loan book sell-off is a quick fix to the serious problem of funding in Higher Education. Continually government’s have over-estimated the number of students fully paying back their loans, gambling public finances on debt repayments.

“With unsustainable levels of debt the likelihood of changing terms and conditions is inevitable. Higher Education funding needs a complete overhaul and ministers need to consider the public good of education.”

Sean Doherty

Sean Doherty

News Editor

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