The Government has begun controversial plans to sell off billions of pounds worth of student debt to private companies, a move experts warn could come at a cost to students and taxpayers as the industry falls victim to "marketisation".
Graduates who took out loans before the 2012 academic year could find themselves making repayments to private lenders buying up contracts from the Student Loans Company (SLC) – a move the Treasury expects to make £12bn from in return.
Universities Minister Jo Johnson said there would be no impact on graduates with loans, but union leaders have attacked the decision - with the National Union of Students (NUS) accusing the Government of pulling an “ugly move” on students.
Sorana Vieru, NUS Vice President of Higher Education, said: “Selling the loan book to investors is privatisation through the back door. It is outrageous that bankers will profit off the backs of graduates who took out loans because they had no other option.”
First to be sold will be the 2002/06 student loan book, which had a face value of £4bn the end of the 2014/15 financial year.
A string of factors - including the likelihood that some student loans will not be repaid in full - means the money recouped from the sales will be lower than the face value, however.
Plans to privatise the debt pile were previously called off by former business secretary Vince Cable in 2014, after deciding that it would not reduce public sector debt by as much as originally thought.
Over the next four years, the Government aims to sell off debt from loans taken out before 2012, when tuition fees in England were trebled to £9,000 per year.
Former City lawyer and Advisory Board member for the Intergenerational Foundation think-tank, Estelle Clarke, said selling student loans was a “bizarre step for the government to take” as well as a “bad idea for students and taxpayers”.
Cheapest universities for undergraduate cost of living
Cheapest universities for undergraduate cost of living
1/3 The average additional loan taken out by students at Liverpool Hope was £3,972
2/3 Cardiff University students took out an average loan of £4,057 on top of their government allocated loans
The main building of Cardiff University
Wikimedia Commons/Stan Zurek
3/3 Students at the University of Gloucestershire took out an average of £4,175 in additional funding
She told The Independent: “Students and graduate borrowers will be right to be alarmed by this announcement: their loans will be controlled by private purchasers whose legitimate intention is to extract as much money as possible from graduate borrowers.
“The Sale of Student Loans Act 2008 allows student loans to be made worse for borrowers and there is a serious risk this will happen.
"The loans in question already charge expensive monthly compounding interest and purchasers may well seek to receive more money from borrowers.
While the Government insists there will be no changes made to the terms and conditions of loans undertaken, Ms Clarke warned: "The government has a track record of breaking its promises; its ‘press’ position cannot be relied upon”.
"The loan sales smack of short-term desperation – paid for by the educational and economic wellbeing of a nation."
Universities and College Union said: ‘This is a government that has already moved the goalposts on loan repayment to sting graduates with higher charges, so you can forgive our scepticism when the minister says people with student debts have nothing to fear.’
Nick Hillman, Director of the Higher Education Policy Institute, has previously argued, however, that by selling off loans, the Government will be forced to set clearer repayment agreements and the move could therefore make the borrowing system more secure.
Announcing the decision, a Department for Education (DfE) spokeswoman said an initial value for money assessment had been carried out and that it had been deemed a good time to go through with the sales.
Chief Secretary to the Treasury David Gauke said: “The Autumn Statement reaffirmed our commitment to the sale of the student loan book if market conditions were favourable and I'm pleased the timing is now right to start the process.
”This sale makes sense for taxpayers and will play an important contribution in our work to repair the public finances.“
Universities Minister Jo Johnson said: ”This Government is committed to bringing public finances under control. As part of this we will look to sell assets where value for money to the UK taxpayer is assured.
“This sale will have no impact on people with student loans and will only proceed once we are satisfied that it represents value for money for the taxpayer.”
But Sorana Vieru, vice president for higher education at the National Union of Students (NUS), argued: “The Government are pulling yet another ugly move on students. 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.“
Recent UCAS figures have fuelled concerns students are becoming increasingly put-off the prospect of going to university due to financial pressures.
The application rate for student nurses fell by almost a quarter this year, following the government's move to scrap NHS bursaries.
"As students and their parents begin to understand the impact of this, more and more people will shy away from university at a time when receipts from EU students are less because of Brexit," Ms Clarke added.
"The government is shooting itself in its economic foot with these loan sales and taxpayers and borrowers will end up picking up the government’s ‘medical bill’."
University and College Union general secretary Sally Hunt, added: ”The Government has tried to sell off parts of the student loan book before, but not gone through with it because it didn't feel the taxpayer would get a good deal.
“We don't believe another attempt to bring private companies into the higher education sector can represent a better deal for students or the taxpayer.”
UK Government Investments has begun searching for buyers to snap up the pre-2012 English student loan book through a series of sales before the end of the 2020/21 financial year.
Chancellor Philip Hammond is searching for ways to shore up the public finances in the face of ballooning public sector debt, which reached 86.2% of gross domestic product in December.
Sale of the student loan book would be structured through a securitisation to attract an array of different investor groups, including pension funds, insurers and asset managers.
It is expected to take several months to complete and would depend on “market conditions”, the Government added.
Additional reporting by PAReuse content