Government sells £900 million in student loans to debt collection company

Sale made as part of an effort to improve the nation's finances

Some 300,000 former students could soon face a barrage of fresh debt demands after the Government announced it was flogging student loans worth £890m to a private company, renowned for its persistent debt recovery practices.

Erudio Student Loans has agreed to pay £160m for the loans, taken out by students between 1990 and 1998.

But it is the firms behind Erudio that are interesting. One is Arrow Global, a specialist debt recovery firm which buys loans that have gone sour from banks and credit card companies. Arrow – which floated on the Stock Exchange last month – is providing the expertise to manage the collection of these outstanding student debts.

The second is CarVal Investors. Like many private equity firms its business is pretty opaque, but it is known to have a very active arm in the UK focusing on buying distressed assets. It is in effect providing the money part of the deal, although Arrow invested £11m to buy the student loans portfolio sold yesterday.

The deal is a bit of a departure for Arrow. In the past it has focused on snapping up sour loans at a massive discount from banks and other finance firms.

The move into buying public sector loans could grow as the Government looks to get rid of more dodgy debt off its balance sheet. Tom Drury, the chief executive officer of Arrow Global, said: “This is an important step towards delivering this year’s financial goals and positioning the business for future growth.”

Yesterday’s sale involved the remaining rump – 17 per cent – of the mortgage-style student loans on the Government’s books. Two previous sales in 1998 and 1999 passed a combined £2bn of the loans to the private sector. About a million borrowers were retained by the Government’s Student Loans Company after the earlier sales and 69 per cent of those have subsequently fully repaid their debt.

That suggests there remain around 300,000 borrowers still to repay student loans from more than 15 years ago, and it is these that will be targeted by Arrow-backed Erudio.

Traditional bailiffs and similar firms are debt collectors that are charged with finding debtors and getting cash from them.

Debt purchase firms such as Arrow operate differently in that they bid for chunks of debt put on sale by finance firms who may have given up chasing the loans and are happy to get any kind of returns from them.

Typically debt purchase firms pay just a few pence in the pound for these dodgy debts and then carpet bomb potential debtors. In the past that has led to many complaints about innocent people receiving threatening letters, phone calls or even visits simply because they have the same number as a debtor, or used to live at the same address as them.

As the debt purchase firms own the debts, they only make money if they can collect on them, so some tend use whatever methods at their disposal to do so.

However the industry has come under the scrutiny of the Office of Fair Trading and responsibility for its regulation will in April pass to the Financial Conduct Authority.

Most debt purchase firms took an enormous hit in the credit crunch when they were left saddled with too much uncollectable debt.

Arrow’s woes led it to be sold to the RBS Special Opportunities Fund in 2009. The Scottish bank – which is facing a fresh inquiry by banking regulators into allegations that it drove firms to collapse so it could buy back their assets at rock-bottom prices – still retains a third of the business after last month’s IPO, which saw shares debut at 205p. The shares topped 265p earlier this month but yesterday fell 6.5p to238p.

Universities and Science Minister David Willetts ignored the implications for former students when he announced the sale yesterday morning. 

Instead he 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.”

Have you tried new the Independent Digital Edition apps?
Arts and Entertainment
musicOfficial chart could be moved to accommodate Friday international release day
Sport
Wes Brown is sent-off
football
News
i100
Sport
Italy celebrate scoring their second try
six nations
Sport
Glenn Murray celebrates scoring against West Ham
footballWest Ham 1 Crystal Palace 3
Arts and Entertainment
Drake continues to tease ahead of the release of his new album
music
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs Student

Recruitment Genius: Graduate / Trainee Sales Executive

£15000 per annum: Recruitment Genius: A Graduate/Trainee Sales Executive is re...

Ashdown Group: Graduate Graphic Designer - Peterborough - £18,000

£22000 - £23000 per annum + training: Ashdown Group: Graduate Graphic Designer...

Ashdown Group: Graduate Developer - Cambridgeshire - £23,000

£22000 - £23000 per annum + training: Ashdown Group: Graduate Front-End Develo...

Ashdown Group: Graduate Application Support Analyst

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

Day In a Page

War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
Yvette Cooper: We can't lose the election. There's too much on the line

Yvette Cooper: We can't lose the election. There's too much on the line

The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

It's not easy being Green

After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

Gorillas nearly missed

BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

The Downton Abbey effect

Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
China's wild panda numbers have increased by 17% since 2003, new census reveals

China's wild panda numbers on the up

New census reveals 17% since 2003
Barbara Woodward: Britain's first female ambassador to China intends to forge strong links with the growing economic superpower

Our woman in Beijing builds a new relationship

Britain's first female ambassador to China intends to forge strong links with growing economic power
Courage is rare. True humility is even rarer. But the only British soldier to be awarded the Victoria Cross in Afghanistan has both

Courage is rare. True humility is even rarer

Beware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor
Alexander McQueen: The catwalk was a stage for the designer's astonishing and troubling vision

Alexander McQueen's astonishing vision

Ahead of a major retrospective, Alexander Fury talks to the collaborators who helped create the late designer's notorious spectacle
New BBC series savours half a century of food in Britain, from Vesta curries to nouvelle cuisine

Dinner through the decades

A new BBC series challenged Brandon Robshaw and his family to eat their way from the 1950s to the 1990s
Philippa Perry interview: The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course

Philippa Perry interview

The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course
Bill Granger recipes: Our chef recreates the exoticism of the Indonesian stir-fry

Bill Granger's Indonesian stir-fry recipes

Our chef was inspired by the south-east Asian cuisine he encountered as a teenager
Chelsea vs Tottenham: Harry Kane was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope

Harry Kane interview

The striker was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope
The Last Word: For the good of the game: why on earth don’t we leave Fifa?

Michael Calvin's Last Word

For the good of the game: why on earth don’t we leave Fifa?
HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?