About 450,000 loans that entered repayment between 2002 and 2006 will be securitized, or packaged, and sold as bonds to investors, much like what happens in the United States. The sale would represent the first time the government is selling loans whose repayments depend on a graduate’s earnings reaching above a certain threshold. Repayments on these loans being sold stop if a graduate’s income falls below a certain level. Payments are 9% of any income above a certain level which moves with the retail price index.
The latest sale is expected to be followed by another sale of pre-2012 loans with total proceeds from all sales reaching 12 billion pounds.
The UK government said the sale would have “no impact” on students repaying their loans because terms and conditions of their loans would remain the same and students will continue to deal with HM Revenues & Customs and the Student Loans Company, not the buyer.
However, critics point to problems that arose when the government sold in 2013 250,000 pre-1998 mortgage style student loans to a private company called Erudio. In that sale, Erudio was forced to apologize after administrative errors caused letters to be sent to graduates demanding early repayments.
The National Union of Students said it was concerned the selling of loans to the highest bidder would tempt the government to charge extortionist interest, commercial terms and raise the repayment threshold to make them more attractive to private buyers.
Additionally, plans for a sale three years ago were scrapped after it was decided the sale would not cut public debt as much as originally thought. So, some question how much value selling student loans will be for the government in the end. For now, only time will tell.
Author: Dave Rathmanner
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