Student Loans for Sale: killing confidence in the system?

A couple of weeks ago, The Guardian leaked a confidential, Whitehall-commissioned report, written by Rothschild investment bank and piss-takingly dubbed ‘Project Hero’.

‘Project Hero’ proposed redrawing the terms of student loans taken out over the past 15 years to make them more expensive for borrowers and therefore more attractive to potential purchasers.

Danny Alexander (Chief Secretary to the Treasury) later confirmed that the student loan book will indeed be privatised to raise £10bn, but offered no further details about the ‘sweeteners’ involved.

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Among the first to respond was Martin Lewis, head of the Independent Student Finance Taskforce. Lewis has succeeded in explaining higher fees to the younger generation better than any politician or university, so it’s interesting that he went off-message and took a strong stand against the suggested fire-sale, tweeting:

“To hike past students loan interest [would] betray every democratic principle and kill confidence in loan system.”

Lewis’s point is a very good one. It’s an act of faith for anybody to attend university in the higher fees era. Trust in the loan system is vital. Any suspicion that graduates will be fleeced by the state is likely to have serious consequences, especially for the most debt-sensitive of young people.

Writing in The New Statesman, Alex Hern has been excellent at explaining the economic ramification of the sell-off, first describing the idea as “terrible financial management” and then noting that:

“Our government is twisting itself in contortions, discussing student loan debt as though it’s a pile of newspapers sat at the back of the treasury, which they mustn’t be “compulsive hoarders” of, in order to sell at a discount an asset which is significantly more valuable in public hands than private. It’s politically driven economic illiteracy.”

Finally, Tim Whitmarsh, a Professor of Ancient Literatures at Oxford University, makes important points about social justice:

“The situation is deeply troubling. Higher education is the primary driver of social mobility in the UK. Huge fees are already a deterrent to many, but at least when they came in we were promised a benevolent, progressive loans structure. The involvement of the private sector in student financing can only damage that. Private companies want profits, and profits have to come from somewhere.”

Professor Whitmarsh has set up an online petition against loans privatisation, which already has over one thousand signatures. It can be found here.

All three of the arguments above are very persuasive. Nothing will undo Lewis’s work in promoting the new system faster than potential university students losing confidence in those from whom they must borrow. Hern is also right to point out the mindless economic short-termism of the proposal. And Whitmarsh’s concerns about interfering with the ‘safety net’ of a relatively progressive clawback mechanism are entirely justified if participation rates, particularly among those from less well off backgrounds, aren’t to be damaged.

As Martin McQuillan says, this is a “trainwreck” of an idea.

For an overview of the counter-arguments to this position, see Andrew McGettigan’s patient summary of a sell-off’s ‘quick wins’. However, note that McGettigan’s conclusion – that selling the loan book “without consent or consultation and without a parliamentary vote” is not on – is entirely consistent with the views expressed above.

The terms of students’ participation ‘bet’ must always be honoured. If you back a winner at 3-1, you don’t expect the bookie to ‘retroactively’ cut your odds to 5-2.

You can’t change the price of a degree once the student has graduated.