The British Minister of State for Universities, Jo Johnson, officially announced the beginning of the sale of an English student loan book. The government first proclaimed the controversial move, part of a pre-approved 4-year program of loan sales, in November 2016. After some delay, the sale is finally moving forward.
The transaction features a series of loans valued at £4 billion, potentially transitioning them to a private holder. These loans entered repayment between 2002 and 2006. The state expects to recover £12 billion. To avoid any confusions, the Student Loans Company will continue administering the loans as well as collections after the sale.
Supposedly, “affected” borrowers will not actually be affected at all. They won’t be required to take any actions according to the UK government, and the transaction will have no impact on individual borrower repayment. In other words, student borrowers’ terms and conditions would remain the same according to the Department for Education.
Minister Johnson explained the primary goal of the move was to repair public finances, to ensure value for money to the UK taxpayers, and to keep the state budget well-balanced.
People familiar with the matter may be reminded that this is not the first time that the British government intended to sell off student loans. Back in 2014, similar plans were cancelled. It was deemed that such a move would not have been able to decrease government debts.
In fact, government decisions to start selling student loan books have generally raised many concerns among the ordinary people and the opposition in the parliament.
Sorana Vieru, the Vice-president of the National Union of Students did not hide her disappointment by the government’s decision according to the Gaurdian. She even called the move ”economic illiteracy”, claiming the government wanted to sell the education of its future leaders cheaply.
Not everyone was too negative though. For instance, the director of the Higher Education Policy Institute, Nick Hillman, said it was better to have the student loans sold provided there were no changes in the repayment scheme for the borrowers. However, in his opinion, it would take time to see whether the deal was a good move in terms of value.
A professor of public economics at the London School of Economics, Nicolas Barr, questioned its effect on UK taxpayers. He pointed out that pre-2012 loans included an interest-subsidy which would decrease the sales price of the debt. Also, the repayment duration was uncertain, as the student loans were related to the level of income of the borrower. Barr said that the market had little experience with buying debts with a non-fixed return date. Therefore, it would price the debt conservatively which jeopardize the economic return for taxpayers.
Author: Andrew Rombach
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