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Anger and concern over privatisation of student loan book

The starting pistol has been fired on the privatisation of the student loan book, but the move has been met with anger and concern.

Under the proposals, the G overnment plans to sell of loans issued before 2012 that are worth £12 billion to the public purse in total.

First to be sold will be the 2002/06 loan book, which had a face value of £4 billion at the end of the 2014/15 financial year.

Ministers said that there would be no impact on graduates with loans, but union leaders attacked the decision - with one accusing the Government of pulling an "ugly move" on students.

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.

Plans to privatise the vast debt pile were previously called off by then business secretary Vince Cable in 2014, after deciding that it would not reduce public sector debt by as much as originally thought.

A Department for Education (DfE) spokeswoman said on Monday that an initial value for money assessment has been carried out and that now was a good time to restart the sale.

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."

Former chancellor George Osborne said in 2013, when the sell-off was first put forward, that the proceeds would help fund more students studying for a degree, as well as control public sector debt".

The Government insisted that the move will not impact on former students who hold the loans, with controls put in place to ensure that terms are not changed.

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."

University and College Union general secretary Sally Hunt, said: " 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.

Martin Lewis, founder of MoneySavingExpert.com, said: "The sale of the pre-1998 student loan book has had a near-disastrous effect on many. While they are not allowed to change the terms and conditions, there's still a huge variety of operational systems that can and did change and these are what caused the misery when Erudio took over.

"Issues such as wrong deferment forms, wrong processing of deferment forms and, most crucially for the first-time student, loans being put on to credit reports, caused much distress, pain and worry for many of the people with those loans.

"I've had meetings with the Department for Education on this and, while I do have concerns over the sale of the next loan book, they are at least making the right signals that the same mistakes won't be made again.

"I hope it won't have the same damaging impact as the sale of the last tranche - but it is a question of 'watch this space' to see if their rhetoric is matched by their delivery."

Nick Hillman, director of the Higher Education Policy Institute (Hepi), said: " Debates about the sale of student loans have been plagued by misinformation. One particular issue is the idea that someone could buy the loans and then change the terms and conditions so graduates end up paying more.

"In fact, the terms and conditions have to be nailed down at the point of sale because otherwise the buyer has no idea what it is they are buying and will not part with their money.

"The Government have told me that the terms of the sale mean 'investors would have no right to change any of the current loan arrangements or to directly contact people who hold the loans'.

"Moreover, as we have seen in recent times, the terms can be changed when the loans are on the Government's books - the repayment threshold was going to go up in line with earnings, but is now fixed at £21,000. So the public debate on terms and conditions is in the realm of alternative facts.

"What really matters for the long term are, first, whether taxpayers get value for money. We saw in Gordon Brown's sale of the government's gold and also in Vince Cable's sale of Royal Mail how hard that is to achieve and how controversial it can be if the price paid comes to seem too low.

"Ministers will say the underlying legislation only allows sales which are good value for money but it takes time to know if that has happened in practice.

"A second important question is what might happen if the Government should ever come to feel that it can afford to ease the debt burden on graduates."

Shadow education secretary Angela Rayner said: " The Tories have tried to sell off the student loan book before, but abandoned the idea when they realised it was a bad deal for students and a bad deal for the tax-payer.

"This Government never learn any lessons - this sale will do nothing to ease the burden of debt piled on students by the Tories who have trebled tuition fees and scrapped maintenance grants."

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