£900m student loans sold to debt collectors: Move prompts fears students from 1990s who now face financial problems could be hou

October 25 2013

By : Daniel Martin

Ministers are to sell off almost £1billion in student loans to a private debt collection agency.

The London Stock Exchange will be told this morning that the Government has agreed a deal to privatise £900million-worth of loans made to students who went to universities in the 1990s.

The move will lead to fears that the private firm will be much less sensitive in chasing debts, and could hound those facing financial problems to pay up – even more than two decades after they went to university.

Almost 15,000 people have signed an online petition against the plans, saying it will simply allow private companies to profit at the expense of poor former students. The sell-off comes just weeks after the controversial sale of Royal Mail.

Shares have shot up since the sale, leading to concerns they were massively undervalued. The controversy could be repeated with student loans because it is reported that the sale will be for a fraction of the debt’s value.

The e-petition on the Downing Street website says: ‘By selling outstanding loans to the private sector, the Government would lose a long-term source of revenue to the Treasury, sacrificing it for meagre short-term gain and potentially leaving private financial companies to profit without investing back into the UK economy.

‘Coupled with proposals to remove the cap on student loan interest rates, this would saddle many UK graduates with loans they would be unable to repay during their working lives.’

The disposal, to a debt recovery specialist, will be for a fraction of the debts’ face value, and encompasses mortgage-style loans that are the last of their kind still in public ownership.

The sale, which does not include Income Contingent Repayment loans like the ones currently offered, comes as student groups step up their protest over the disposal of the loan portfolios. The Coalition is drawing up plans to sell the entire outstanding student loan-book, which has a face value of roughly £40bn.

Investment bankers from Barclays and Rothschild were appointed by the Department for Business, Innovation and Skills last month to oversee the sale.

The terms and conditions for borrowers who took out mortgage-style loans will not change as a result of the sale.

Danny Alexander, the chief secretary to the Treasury, said during the summer that the Government hoped to raise £10billion from the sale of corporate and financial assets such as the student loan book by 2020.

Speaking in March, when the mortgage-style student loan auction was initiated, David Willetts, the universities and science minister, said: ‘Selling the remaining mortgage-style student loans will allow us to reduce public debt and maximise the value of one of the Government’s assets.

‘The private sector’s expertise makes it well-placed to collect this debt and the sale will also help the Student Loans Company to concentrate on providing loans to current students.’

The low recovery rate on the 1990s loans means the sale price is likely to be only in the tens of millions of pounds, reflecting the distressed nature of the debts, people close to the situation said on Sunday.

The mortgage-style loans were available between 1990 and 1998, with two tranches sold in 1998 and 1999. Repayments on them can be deferred for a year at a time if borrowers’ income is below 85% of the national average earnings.

‘The remaining loans owned by the Government are mostly in deferment or in arrears, so total annual repayments are low,’ BIS said in March, adding that it was likely to receive significantly less than £900million from a buyer.