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The government is about to sell off huge portions of student debt to corporations at a discount. It’s one more step along the road towards privatising higher education.

Words: Dan Fox

With more than 200,000 degree-educated residents, Bristol boasts a greater percentage of ex-students (46%) than most other cities. There are also around 52,000 current students at the city’s universities. Each new intake’s debt increases. Before 2012, average debt on graduation was under £25,000 per student; now it’s reckoned by the Institute for Fiscal Studies to be a whopping £44,035.

No longer will your student loan repayments go towards the state institutions most of us value.

If you’re a graduate, you probably prefer not to think about this. Repayments usually come straight out of your wages and the money goes to HMRC, via the Student Loans Company, to pay for schools, roads, the NHS and so on. The SLC paid your university the tuition fees when you started; it administers the repayments when you leave.

But whether you’re a graduate or not, the deal just changed in favour of corporations, and at our expense. Student loans are in the process of being sold off to banks to be traded as ‘securitised assets’. No longer will your student loan repayments go towards the state institutions most of us value. Now they will go to banks like Credit Suisse, Lloyds and JP Morgan, or whichever corporate investor owns your debt at that time. Put simply, private companies will profit hugely from UK higher education.

How is this happening?

No one quite knows what the loans are worth, but what that means for the banks is a huge discount.

Understanding how exactly this all works is difficult – in fact, boring or confusing the public could well be part of the government’s strategy in how it makes these sorts of unpopular announcements.

But the devil is in the detail. Unlike previous selloffs of student loan debt, which had a fixed value, the latest one is made up of loans that are income-dependent, and no one has any real idea what they’re worth. That factor is hardly likely to improve the package’s sale price.

The debts of students who completed their degrees in 2002-2006 make up the first batch being sold off in an auction of all student debt up to 2012. That first batch’s face value is £4bn, with a total of £12bn predicted to be raised by the exchequer over the next few years – but these are rather meaningless figures.

What matters in a loan is the amount reasonably expected to be repaid. Obviously, as time passes, more repayments come in to HMRC. Although these fluctuate with the economy, unemployment levels, wage levels and so on, they represent a long-term and growing – albeit unpredictable – income for the country.

And that’s why it’s crucial we care: the government intends to sell off a huge chunk of the country’s future income at a price discounted to the point where banks will buy them. Yes, no one quite knows what they’re worth, but what that means for the banks is a huge discount.

Jo Johnson, minister for universities, science, research and innovation said in the announcement in February: “The government’s policy is to sell assets where it is value for money to do so and where there is no policy reason to continue to own them.” The key phrase is ‘value for money’. In simple terms, ask yourself: what investor would buy anything of uncertain value unless it is very cheap?

The government will say it’s a great deal when the final announcement is made (after deals behind closed doors), but this will just be hogwash. The student loan book will only sell at all if it is hugely discounted. Banks are not stupid. It’s obvious economics.

A bad deal

Mortis gradutaion hat with pound coinsFinancial journalists from the Financial Times to the Economist all state it will represent a bad deal for taxpayers. Bristol Students’ Union is against it, saying it is “a short-termist approach to state finances – swapping long term loan interest payments that should be invested into public services for smaller short-term cash injections.” Nationally 64% of the population, graduate or not, are against it. So why is it going ahead?

There is only one reason to make such a bad deal: because short-term cash is valued over long-term income. As Johnson stated pretty clearly, the Tories are aiming to sell off public assets wherever possible. (And it’s not only the Conservatives: Gordon Brown famously sold off tonnes of the country’s gold reserves at a terrible price. He also enacted the first student debt selloff in 1998, which lost the public purse £240 million – and created the means by which the current process is happening.)

Ideological motivations aside, this scandalous deal highlights an age-old structural problem in British politics: the short election cycle favours discounted asset selloffs over long term investments. It’s bankers who rake in the chips. That needs to be fixed, no matter which party is in power.

But the Tories do seem on a one-way street to privatising education; student debt is merely one aspect. The scrapping of the last maintenance grants last year and the increase of maximum debt amounts for students are all incremental steps along the same path. By using the now familiar strategy of making non-headline-grabbing, rather dull-sounding changes that few fully understand, they are leading us towards the US system of private, for-profit education.

Student Loans in the UK

Students in the UK used to receive grants for their higher education, but this changed to loans in 1990. In 1998, the government introduced a new method of repayment: Income Contingent Repayments (ICRs). This type of loan meant that students paid 9% on all earnings above a threshold (currently £21,000) after leaving university. It is an unusual type of loan because the amount repaid has nothing to do with the amount loaned – instead it is based solely on income. Furthermore, the government has always said that if a graduate doesn’t earn enough to pay off the debt within 30 years, the debt will be written off. It was estimated at first that 60% of graduates would completely pay off their debts, but revised estimates show that only around 25% will actually pay them off. It was always expected that these loans would lose money, so in that way, loans subsidise higher education.

 

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