The government has begun its controversial sale of the student loan book, which it expects to recoup £12bn in the long run for the exchequer, and assured graduates that they will not have to pay more.
The universities minister, Jo Johnson, said the move would have “no impact” on student borrowers paying off loans, as terms and conditions would remain the same after the sale was completed.
Critics, however, were sceptical of the minister’s assurances, noting that the government had already moved the goalposts once on student loan repayments. Others raised doubts that the sale would result in value for money for taxpayers.
The sale covers a tranche of £4bn of loans, which became eligible for repayment between 2002 and 2006. It is the first of a four-year programme of sales of loans issued before 2012, when university tuition fees were raised to £9,000.
Announcing the start of the process in a written statement to parliament on Monday, Johnson said: “This government is committed to bringing public finances under control and returning the budget to balance.
“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.”
An earlier plan to sell was scrapped in 2014 by Vince Cable, in his role as business secretary in the coalition government, after he said the move would not achieve its stated aim of reducing government debt.
Expressing concern about the latest proposed sale, Martin Lewis, the founder of moneysavingexpert.com, who has previously campaigned on the issue of student loans, warned that an earlier sale of the pre-1998 student loan book to a private company called Erudio had caused serious problems for many borrowers.
Erudio was forced to apologise after complaints about a series of administrative errors that resulted in graduates receiving letters telling them they must pay, even though their earnings had not reached the repayment level.
In the latest sell-off, loans and collections will continue to be administered by the Student Loans Company.
Lewis has had meetings with the Department for Education to discuss his concerns. “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,” he said.
The National Union of Students vice-president Sorana Vieru described the sale as economic illiteracy and warned that it risked beginning a process by which loans would have to be made more attractive to private buyers at the expense of student borrowers.
“It is outrageous that bankers will profit off the backs of graduates who took out loans because they had no other option. The government wants to sell our education on the cheap and this is only the first step,” she said.
Sally Hunt, the general secretary of the University and College Union, which represents university workers, 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.
“You can forgive our scepticism when the minister [Johnson] says people with student debts have nothing to fear.”
Nick Hillman, the director of the Higher Education Policy Institute thinktank, said he thought the sale could make sense. “Why should it keep the loans for ever on its books? Why shouldn’t the demand of pension funds for long-term income streams be satisfied if there are no clear losers?” he asked.
But Hillman raised concerns about whether the sale would result in taxpayers getting value for money, saying: “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 that are good value for money, but it takes time to know if that has happened in practice.”
Nicholas Barr, professor of public economics at the London School of Economics, said provided the sale of student loans does not affect the repayment formula, there should be no concern to student borrowers.
The sale does however raise two concerns for taxpayers, he said. “First, loans issued before 2012 included an interest subsidy, correspondingly reducing the sale price of the debt. Second, loans have income-contingent repayments, which means that – unlike conventional debt – the repayment duration is uncertain.The market has little experience of buying debt with an uncertain maturity date and will therefore price such debt conservatively.
“For both reasons, it is open to question whether the price for which the government can sell student debt represents good value.”