The government must not sell-out over Student Loans book

George Osborne’s announcement in this week’s budget of the government’s plans to sell off the Student Loans book can certainly sound somewhat ominous: a debt that was previously owed to the government could now instead be held by some clandestine private company. Surely this is a worry?

In fact, the selling of the Student Loans book is very unlikely to have any impact whatsoever on students or graduates – the terms and conditions around the loans will remain the same, and will continue to be regulated in exactly the same way. The sale of the debt is essentially an easy way of the government reducing its lending liability.

This is not to say that it is necessarily a sensible policy decision – that will depend entirely on what price the government manages to get for the loan book.

With the government eager to get debt off its hands, private companies are likely to be looking to strike a hard bargain; selling off the debt at too low a price could in this case lose a significant amount of taxpayer’s money.

So students and graduates will not be directly affected by this sale, except to the extent that they, as taxpayers, suffer from any poorly negotiated sale.

There is, however, a wider concern. There are those who are currently making the argument that the whole system of student loans should be transformed so that government-backed student loans would either only be for poorer students, with all other students instead having to undertake private loans, or dropped entirely.

In its second submission to the Browne Review of Higher Education Funding and Student Finance the Russell Group- who represent 20 of the UK’s  most research-intensive universities- argue that “the private sector could provide some of the up-front capital to support higher graduate contributions”, noting that “private lending to students is already common practice in other countries such as the US” (pg 22).

Unlike the sale of the student loans book, this type of transfer of government loans to private loans could seriously impact on students and graduates. Inevitably, private companies would only be interested in such an arrangement if there was money to be made: and whose money would this be if not that of students and graduates?

Terms and conditions would undoubtedly be less sympathetic; and this is aside from the not insignificant psychological shift involved in taking out tens of thousands of pounds of loans from a private company.

Perhaps most worryingly, though, commercial loans are necessarily regressive – a private company that offers a loan will always offer better conditions to those who represent a lesser risk, and so worse conditions to students from poorer backgrounds. So under a privatised – or partially privatised- student loans system, profit is made from all students, with poorer students paying most of all.

So let’s not worry too much about the announcements made this week; but we should worry a great deal about what could be to come if the Russell Group and others have their way, such that the role of private companies in student loans becomes far ever-more significant.