Last
updated: 28/11/07
Student loans are sold by Government
The
speculation over the sale of student loan debt was confirmed during
the recent Queen’s speech.
This decision was taken in light of the growing student numbers and
the higher borrowing levels. The Student Loans Company lent almost £3bn
in 2005-06 which raised government debt levels and made their public
finances appear weaker.
The money generated from government by the Student Loans Company is
worth around £1.81bn and this is expected to increase to £55bn
in the next ten years.
This change will give Gordon Brown the opportunity to meet his manifesto
commitment on education and make the spending rate faster than the growth
of the economy. It will allow him to ‘meet his sustainable investment
rule, which stipulates that net debt must average less than 40% of GDP
over the cycle,’ says Jonathan Loynes, chief UK economist at Capital
Economics.
The sale of student loan debt will reduce the cash measure and create
an immediate lump sum from the investors. The Government estimates that
it will make around £6bn over the next three years dependent on
market conditions.
One question raised by this is why any company would choose to invest
in huge debt unless there was a long term profit in it for them. One
possibility is that they will be attracted to the rising costs of education
and the potential profits that could be made. However, this is cast
in a dubious light when faced with the fact that no other group, aside
from home mortgages, take longer to pay back their loans.
Heather Steel, a student from Stirling University is worried that the
sale of student debt will lead to an increase in interest rates. In
the current environment where student debt is already huge, increasing
interest rates is the last thing they want to see.
The NUS president, Gemma Tumelty, argued that the ‘primary concern
is that individual borrowers - students and graduates - who have received
loans, will not be affected by these proposals through changes in terms
and conditions or increased interest rates.’
The Government has reassured students that there will be no differences
made to the borrowing process and that they would retain full power
over interest and repayment rates.
by Pamela
Lawn
