The government is “starting the process” to sell parts of the pre-2012 English student loan book worth £4 billion, a move aimed at reducing the national debt.
The sale covers loans that entered repayment between 2002 and 2006 in which future repayments have a face value of £4 billion, a written ministerial statement from universities and science minister Jo Johnson says.
“The position of all graduates, including those whose loans are part of a sale, would…not change as a result of the sale,” says the statement.
While student loans do not contribute towards the government’s calculation of the public spending deficit, the borrowing to create the loans does add to the national debt.
Critics argue that the move is mainly aimed at making national debt figures more palatable and would actually represent a bad deal for the public purse, as the loans would be sold at a price below their long-term worth in order to attract buyers.
Plans to sell pre-2012 student loans were first outlined by the Conservative-led coalition government in 2013.
But they were vetoed by then business secretary Vince Cable, a Liberal Democrat, in 2014. “The government was considering the sale of student loans on the basis that it would reduce government debt. Recent evidence suggests this will no longer be the case,” Sir Vince said at the time.
The government's announcement says the sale will be subject to a value for money test.
But Andrew McGettigan, a writer and researcher who is an expert on the student loans system, wrote on his blog: “The key point that the government’s announcement obscures is that a value for money test can be passed even if the loans are sold for significantly less than the fair value – ie what the government thinks the loans are worth.”
He added: “By selling the loans, the government may improve the headline public finance statistics (it says today that there is a ‘good prospect’ of achieving value for money), but its misplaced valuation of cash today over holding the loan assets will lead at best to a presentational gain, not a fiscal or economic one.”
Sorana Vieru, National Union of Students vice-president for higher education, said: “The selling off of tranches of the student loan book to the highest bidder for less than it’s worth is economic illiteracy. It doesn’t just penalise students and graduates, it is taking money from the public purse which could and should be spent on services over the long term.”
She added: “If it becomes the norm for student loans to be sold to private investors, rather than held by government, it will be all the more tempting for governments to subject future students to extortionate interest, commercial terms and conditions and the raising of the repayment threshold, making loans even more attractive to private interests, but all the harder for new graduates to economically contribute to society.”
Mr Johnson’s statement says the government is “starting the process required to sell part of the English student loan book under the Sale of Student Loans Act (2008)”.
He adds: “This government is committed to cutting the deficit, reducing debt, and living within our means as a country. The government’s policy is to sell assets where it is value for money to do so and where there is no policy reason to continue to own them.”