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Student loans sale - a big deal?

James Humpish questions how the government sale of loans actually affects students and what private investors have to gain.

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Over £4bn of student loans is set to be sold to private investors. The largest ever sale of this nature was commissioned last week, with over 450 000 students' debts to be part of the sale. The deals, worth on average just short of £9000 per student, come as part of a long-term aim to raise £12bn for the Government through the sale of loans made in the last 15 years.

Though the Universities' Minister Jo Johnson has claimed that the sale has "no impact on people with student loans", the move raises serious questions about the nature of the loan and how it can be used to the gain of the government and private investors.

The Vice-President of the NUS, Sorana Vieru, disregarded the move. Citing it as "economic illiteracy", Vieru argued that the sale "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." Despite these fears, the buyers of the loans may yet be barred from altering the conditions of repayment.

Nevertheless, there may be a conflict of interests set to arise for the government. In selling student loans to private investors, its integrity will be tested so that in setting the terms and conditions of student loan repayments, it does so in the interests of students and the public as opposed to private businesses.

The argument for free or subsidised education is that education contributes to society through the skills it teaches, so the state should contribute toward that education. The argument for tuition fees is that a degree offers the private reward of a larger expected salary. As such, there has been movement towards accepting a priced but subsidised education which is free at the point of use. Yet there is no solid argument for understanding how private investors should deserve profiteering from individuals going to university.

The loans will be securitised so that they are effectively pack-
aged into the form of bonds which are sold at a discount depending on their risk. This will become most problematic when the debts of students of the last five years are sold. With income-dependent repayments and interest rates linked to inflation, there is uncertainty about when loans can be expected to repaid and as such it is difficult to accurately price their value to a private investor. If the government were to wait longer, the sale could be made more transparent.

Furthermore, while theoretically students could be unaffected by the move, there is history of governments being unreliable on this front. The most recent example which comes to mind is the previous Chancellor of the Exchequer George Osborne reneging on his commitment to increase the £21 000 threshold for repayment of loans. Instead it is to remain frozen, meaning more will be repaid sooner as that value decreases over time.

The move creates a new asset class in the UK for bonds backed by student debt. Riskier than other typical forms of private sector debt, even if the move secures public finances, there should be concern over whether it really offers full value for money.

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