Ageing student loans sold to debt firms

Graduates whose loans have been sold have "no reason to be concerned" according to Universities Minister David Willetts

Related Stories

The government has sold £890m of student loans to a debt management consortium for £160m.

Erudio Student Loans won the bid to buy the remaining 17% of mortgage-style loans taken out by students between 1990 and 1998.

Student leaders secured assurances from ministers the terms and conditions of the loans would not change.

Loans taken out by students paying higher fees of up to £9,000 a year are not covered by the sale.

Public debt

National Union of Students president Toni Pearce said the move was "extremely concerning" as it would see "the public subsidising a private company making a profit from public debt".

"The impact of this sale won't only affect borrowers, but will affect everybody.

"The simple fact is that having these loans on the public books would be better off for the government in the long run.

"Selling off the loan book at a discount to secure a cash lump sum now doesn't make economic sense."

These loans, superseded in 1997, "are a closed portfolio of ageing debts that are becoming harder to collect with time", the Student Loans Company said in its 2013-14 business plan.

Universities Minister David Willetts said: "The sale of the remaining mortgage-style student loan book represents good value for money, helping to reduce public sector net debt by £160m.

"The private sector is well placed to maximise returns from the book which has a deteriorating value.

"The sale will allow the Student Loans Company to focus on supplying loans to current students and collecting repayments on newer loans.

"Borrowers will remain protected and there will be no change to their terms and conditions, including the calculation of interest rates for loans."

Good deal?

Erudio is backed by a consortium including consumer debt management companies CarVal Investors and Arrow Global.

Arrow Global, which will be the "master servicer" for the entire portfolio, is described as one of Europe's largest providers of debt solutions.

It has invested £11m in acquiring the student loans and has a commitment to invest up to £22m extra in assets by January 2016.

CarVal Investors is one of the largest purchasers of consumer loans in the UK market.

Chair of the university think-tank million+ Professor Michael Gunn said: "The big question is how much the Treasury will receive and whether this is a good deal for the taxpayer.

"Given the problems that the Department for Business, Innovation and Skills is facing in balancing its budget there is a clear case for the proceeds of the sale to be reinvested in higher education to avoid further damaging cuts to the funding of teaching and student support."

Vulnerable borrowers

With mortgage-style loans, borrowers repay in fixed monthly instalments over a set period of five or seven years.

Interest on the loan is charged at the rate of inflation, as measured by the Retail Prices Index.

Repayments can be deferred if the borrower's income falls below 85% of national average earnings - currently £28,775.

Two previous sales of mortgage-style loans in 1998 and 1999 saw £2bn of loans transferred to the private sector.

About one million borrowers remained with the Student Loans Company following those sales, and 69% of those have now fully repaid their debts.

The government has received £2.9bn in repayments.

Of the latest tranche of 250,000 loans sold:

  • 46% of borrowers are earning below the repayment threshold
  • 40% are not repaying in accordance with the terms and conditions of their loans
  • 14% are repaying

The government said Erudio would have to adhere to Office of Fair Trading guidelines on the treatment of vulnerable borrowers and those in financial difficulty.

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.