Government announces sale of the student loan debt

The government has started the process of selling more student loan debt to the private financial sector. It has announced that loans made to students in England between 2002 and 2006 will be put up for sale – to be followed by other pre-2012 loans – with the aim of raising £12bn.

Expert comment from Nicholas Barr, Professor of Public Economics, European Institute, London School of Economics:

“Selling debt is a common practice with credit-card debt, mortgages and the like, and provided that the sale of student loans does not affect the repayment formula, there is no concern from the point of view of borrowers. Selling student loans, however, raises two concerns for taxpayers. First, loans issued before 2012 included an interest subsidy, correspondingly reducing the sale price of the debt. Second, loans have income-contingent repayments, which means that – unlike conventional debt – the repayment duration is uncertain. The market has little experience of buying debt with an uncertain maturity date and will therefore price such debt conservatively. For the latter reason I have been urging government for nearly 20 years to sell income-contingent debt in small tranches so as to build a track record. For both reasons, it is open to question whether the price for which the government can sell student debt represents good value.”

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