Simon Read: Why are we setting 'persuasive' debt collectors on our former students?

Universities and Science Minister David Willetts was in an ebullient mood when he announced the sale of almost 300,000 student loans this week.

He said: "The sale 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 private sector? In truth he's flogged the somewhat sour debts to a company well-known within the industry for its persistent debt-recovery practices.

To be fair, the actual private company which has taken over the debt – relating to old-style mortgage student loans taken out in the 1990s – is Erudio Student Loans.But it's the firms behind that which are interesting.

The key one is called Arrow Global. It is a specialist debt-recovery firm which buys loans that have gone sour from banks and credit-card companies. The second is CarVal Investors, a private-equity firm which has an active arm in the UK focusing on buying distressed assets.

Neither of these companies would be involved in the deal unless they expected to turn a pretty profit. From Arrow's point of view, it has a lot of experience in tracking down dodgy debt.

However, one industry insider told me the firm is renowned for "carpet bombing" potential debtors. In the past such activities have 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.

Indeed, there are many online debt and money-saving forums where people have complained about being contacted by Arrow. That's not to suggest that the firm uses strong-arm tactics or visits people with baseball bats, as unscrupulous bailiffs have been known to in the past.

Far from it. In fact it only employs about 75 people in its Manchester office. They use digital data – such as the electoral roll, or other address lists – to track people down. Often the information is old which is why many end up with demands for money they may have already paid off or never owed.

The industry has recently come under the scrutiny of the Office of Fair Trading. In short, it doesn't have a great reputation. At best a firm like Arrow uses persuasive techniques to recover old debts.

The fact that the Government has now unleashed such a business on some 300,000 former students is not something it should be pleased about.

s.read@independent.co.uk

Twitter: @simonnread