What’s happening to our student loans?

The subject of this blog is not a new topic or breaking news story, but for some, this might be the first time you’ve ever read about the plans to privatise student loans. The implications of this move are incredibly serious, some might even argue as serious as the tripling of tuition fees, yet the media silence on the subject has been overwhelming. This has to change. If the government thinks it can get away with doing something quietly, then it’s far more likely to go ahead with it. But first, what is happening to our student loans?

Danny Alexander revealed a few months back of the government’s plans to sell the student loan book to private investors. This has since been confirmed and is due to take place by 2015. The government commissioned the Rothschild investment bank to write a document, named ‘Project Hero’, . This advised the government on the sell-off, and what private investors could be offered with the sale of the loan book. An estimated £40 billion of debt is being targeted, composed of loans to students between 1998 and 2012.

Obviously investors want a return on the original payment they make to secure the loans, but the kind of debt generated by student loans is risky for investors as much of it won’t be paid back. The government’s own estimates such that 40% will not pay back their debt in full, but some research suggests the figure could be as high as 85%. For this reason student loans will need sweeteners to make them more attractive to buyers. One way is through “synthetic hedging” – promising whoever buys the student loans that they will be paid the difference between the actual cash flow and the estimated cash flow which would have been received without the cap. This is using public finances to guarantee returns to private investment and will cost the government greatly. Financial experts has rushed to criticise the move, with Martin Wolf from the Financial Times branding it “economically illiterate.” Yet for the government’s short-term agenda of securing re-election, it allows them to claim that they have gotten rid of the deficit and kept their election promise. However, this is a cosmetic move which will end up costing us much more in the long run.

The use of, and high cost of, a synthetic hedge could potentially be used as an argument in the future for changing loan repayments or further cutting the HE sector. The other way to guarantee investors a return is to remove the cap on student loans. Currently, the interest rate on our loans is the Bank of England base rate +1%, so it’s 1.5% right now. In America,  the interest rate is 6.8%. Vince Cable has promised they won’t do this, but assurances made by this government have no bearing on what future governments might do. Once the loans are sold and the sweetener is being paid, there is a good chance that the government will decide it can no longer afford to pay the sweetener (which it has to pay for 25 years!) and transfer the cost onto students and graduates instead by changing their loan repayments. We shouldn’t buy the NUS’ assurances that the problem is now solved as this is far from the case.

If the sale is to go ahead, we’ll be starting down a path from which there is no return. Once the loans are privatised, they’ll be out of the government’s hands and ultimately lose accountability. If this lot of loans are privatised, it seems incredibly unlikely that they will decide not privatise all loans in the future. We’ll be condemning people to a life of never-ending debt, which becomes impossible to pay off. We’ll be opening the door to profit being extracted from the fundamental right of education and we’ll be allowing private companies to decide the fate of students and graduates. The disastrous stories coming out of America demonstrate how we cannot allow this to happen.

This is potentially as, if not more, serious than the tripling of tuition fees in terms of the long term impact it could have on people’s lives. We need to be pulling out all the stops to prevent this from happening. The National Campaign Against Fees and Cuts have already called for action to take place this term and I urge students and unions across the country to begin campaigning on this issue. A couple of years ago, the government withdrew the Higher Education White Paper, fearing the backlash from the public. We must again deter them from worsening the conditions of our education and sinking us further into debt by making this move politically toxic for anyone involved. Look out for a forthcoming campaign by the Guild, letting people know what’s happening to their loans and what they can do about it.

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5 Responses to What’s happening to our student loans?

  1. Alex says:

    Shouldn’t the title be: “What’s happening to YOUR student loans?”

    You (along with the 6 other sabbs) are getting paid £17500 (untaxed) straight from the pockets of our Guild members, and all you can come up with is a list of why something is bad?!

    How about some practical solutions that aren’t JUST protests? How about even a plan for a protest?!?!?!?!?

    But then again, after you pay off your own student loan in full, and you’re still left with £8500, I guess it won’t be your problem.

    • hattiecraig says:

      Hey Alex.

      Actually, it is our student loans. I will have a 3 year tuition fee and maintenance loan just like everyone else. I do feel very lucky to be in a position where I am earning a good salary, although you did get the figure slightly wrong, and I would agree that this salary exceeds my needs. The way loan repayments work, and the fact that you haven’t factored in any maintenance loan or living expenses for my entire sabb year, mean that I won’t be paying off my loan at the end of this year, though I appreciate that I will be in a better financial position than many students. The past few months have made me realise just how much difference and how many more opportunities are afforded to those with a higher income. For the first time, I am able to, for example, realistically consider the possibility of doing a master’s, something which I never would have previously been able to afford. This has demonstrated to me more than ever that we need to be doing everything we can to improve the income of students and reduce financial barriers, that’s why I’ll be working and supporting campaigns to increase bursaries, reduce additional course costs, win student staff the living wage and tackle fees.

      This blog was primarily to provide some information to people about the privatisation of student loans as having spoken to people during freshers’ week, it seems that due to the media silence, many weren’t even aware that it was happening. As I mentioned at the bottom of my blog, the Guild will be running a campaign. This will include information about actions you can take as well as a meeting to decide what direction the campaign should go. You are obviously welcome to come along. In the mean time, if want to do something which isn’t protesting, I suggest you write to your MP and ask them to sign this Early Day Motion: http://www.parliament.uk/edm/2013-14/542

  2. Alex says:

    Oh gee, now I feel real bad. I hadn’t appreciated that you had to pay for rent and food as well! It’s not like EVERY OTHER STUDENT has to pay those fees, whilst not getting paid, and many aren’t on the luxury of £3000 fees like you are.

    Anyway, I’m glad to hear that you’re really taking your job seriously. So far for you £17000 odd, we the students have received a blog and the plan that “the Guild will be running a campaign”.

    I can see you are hard at work.

  3. hattiecraig says:

    I’m not trying to garner any sympathy for myself; as I’ve acknowledged, I’m in a privileged position. Obviously this isn’t the only issue I’ve been working on, but I’m glad to see students urging me to do more about this, and I’m glad that as this is something you’re clearly so passionate about Alex, you’ll surely be one of the most involved in the campaign. Please let know if you have any suggestions of things that we should be doing to counter the selling off of student loans.

  4. Pingback: Why I believe in free education, and why it is part of the Community Action Role » Community Action Officer, University of Birmingham Guild of Students

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