Sale of Student Loans: Regulation

Paul Blomfield Excerpts

Tuesday 7th March 2017 Westminster Hall

[Mr Jim Cunningham (Coventry South) (Lab)]

I beg to move,

That this House has considered regulation of the sale of student loans.

It is a pleasure to serve under your chairmanship, Mr Hollobone. I think this is the first time I have been involved in a debate when you have been in the Chair. On your past record, I know that you will be fair and lenient.

I have two universities in my constituency, Coventry University and the University of Warwick. I have come across Members who have attended the University of Warwick, and some who have attended Coventry University. Many students at those universities have expressed concern to me regarding the sale of student loans. It is possible that to a certain extent, the Government are heaping more debt on students that they can ill afford, against a background of further education budgets receiving a 27% cut. The education allowance and the bursaries for midwifery have been abolished. Those things raise questions about the Government’s real intentions regarding skills, whether in the national health service or manufacturing.

On 6 February, the Government announced plans to sell off student loans taken out between 2002 and 2006. Conservative Governments have previously tried to introduce that policy, but they have never been successful. Indeed, the former Business Secretary, Vince Cable, scrapped the move in 2014, saying that it would not help the aim of reducing Government debt. Why are the present Government continuing to pursue the policy? With the sale of Royal Mail, we have seen how difficult it can be to achieve value for taxpayers. It could be argued that the taxpayer lost out in past privatisations. It can be controversial if the price paid seems too low, with short-term profit put ahead of the public interest. If the student loans are expected to be profitable, why are the Government not keeping them and helping the taxpayer?

The market has little experience of buying such debt, and it will be priced conservatively. It is therefore questionable whether value for money can be achieved. It has been widely acknowledged that the Government will make a loss on the sale. The price the loans are sold for is expected to be lower than the face value. It has been described by the Financial Times economic correspondent, Martin Wolf, as “economic illiteracy”. As I said, I have two universities in my constituency, so I am very concerned about the proposal, as are the students.

[Paul Blomfield (Sheffield Central) (Lab)]

My hon. Friend knows that like him, I represent two universities. He is a powerful advocate for universities and students, and he will know that students are worried about the impact on their repayments. The Government have given assurances that the repayment terms will not be affected, but there is an enormous lack of trust given that they have already retrospectively changed those terms. Does he agree that the best way for the Government to reassure students would be to use the opportunity of the Higher Education and Research Bill to give a cast-iron guarantee in law that no retrospective changes to terms of repayment will be made?

[Mr Cunningham]

I agree with my hon. Friend. Frankly, retrospective law is always bad law. The three previous sales were of mortgage-style student loans. There have been no sales of income-contingent loans. In 2013, the Government announced that the final sale of outstanding loans had been made to Erudio Student Loans for £160 million. There have been problems with those loans and a number of complaints about their handling. Can the Minister guarantee that the loans we are discussing will not be resold to overseas buyers? What mechanisms will be put in place to protect students?

--- Later in debate ---

[Joseph Johnson]

There has been a process of engagement with the market, which has been conducted on behalf of the Department by a number of financial advisers, including Barclays and Rothschild among others. Our engagement has shown us that this is attractive to investors at a price that represents value for money for the taxpayer.

The private sector is willing to take on the risk and uncertainty of future repayment cash flows because it values this long-dated asset, while Government are looking to transfer that risk and generate cash for reinvestment in policies with greater economic and social returns. I hope hon. Members will therefore agree that there is a strong rationale for selling part of the student loan book. It is good financial management by the Government; it can help support policies with greater economic and social returns; and can be achieved without affecting the position of students or graduates.

Hon. Members, including the hon. Member for West Bromwich West (Mr Bailey), asked whether terms might be changed. I can tell them that investors have no rights whatever to change terms as a result of any sale process.

[Paul Blomfield]

The Minister will understand why students find his reassurances quite weak, given his track record. Would it not be easier simply to accept the amendment to the Higher Education and Research Bill, which would embed in law a requirement to make no retrospective changes to the terms of repayment?

[Joseph Johnson]

As I said, as a result of this privatisation process, investors will gain no right to change the terms and conditions of the student loans they hold, so students will not be impacted by the sale.

--- Later in debate ---

[Joseph Johnson]

I cannot be held accountable for the views of the FT. The Government have made it clear that we will proceed with a sale only if it represents value for money. There will be a rigorous assessment, and, as per the Sale of Student Loans Act 2008 passed by the last Labour Government, the Government will be obliged to produce a report to Parliament within three months of the sale explaining the whole process. Parliament will have an opportunity to assess that point in great detail.

The sale will comprise the future repayments on the outstanding balances on a selection of these loans, which have a total face value of about £4 billion. The retention value to the Government is lower and is calculated using the standard Treasury Green Book methodology that was developed for asset sales. It also accounts for Government subsidy of the student loan system. The loans that are being sold have already been in repayment for 10 years or more, and therefore much of their original value has already been paid back to the Government.

A securitisation structure will be used for the sale to enable the Government to maximise value for money for the taxpayer. Under that structure, the loans will be sold to a new independent English-domiciled company known as the issuer, whose sole purpose is to own the loans on behalf of investors. Investors will purchase notes issued by the issuer, and the issuer will make payments on the notes using the repayments made on the underlying loans. The sale is a competitive process open to all eligible investors. Market testing reassures us that the different tranches of notes are expected to be attractive to a range of potential investors, thereby promoting an efficient market and optimal pricing.

I emphasise that the sale will not affect the position of graduates or students. Her Majesty’s Revenue and Customs and the Student Loans Company will continue to service loans in the scope of the sale on the same basis as equivalent unsold loans. As I said earlier, investors have no right to change any of the current loan arrangements or directly to contact people with student loans, including those in the scope of a sale.

[Paul Blomfield]

Will the Minister give way on that point?

[Joseph Johnson]

I have dealt with that point.

The sale will categorically not result in private investors setting the terms or operating the collection of student loans. Furthermore, it will not alter the Government’s policies towards student finance and higher education. Under the current system of student support, whose framework has been in place since 2012, we will continue to offer a comprehensive package of financial support to eligible students. That is part of ensuring our economy works for everyone. The current system is and will remain fair and sustainable. That is why the OECD praised our student loan system and said that we are one of few countries in the world to have figured out a sustainable approach to higher education finance.

I am happy to explain where we go from here. The sale process began on 6 February and will last for several months. The final timings and the number of loans in the scope of the sale remain subject to market conditions. As announced in last year’s autumn statement, the sale is expected to be the first in a series of pre-2012 English student loan sales, targeting £12 billion of total proceeds by the end of financial year 2021. Each sale will be subject to an assessment of value for money.

I am very grateful to the hon. Member for Coventry South for giving me the opportunity to discuss the proposed sale of part of the student loan book. I am clear that it represents an opportunity for the Government to reduce fiscal pressures and invest in other policies with greater economic or social returns. I am unequivocal in my commitment that we will do it without the sale changing the position of students and graduates. I look forward to engaging with the hon. Gentleman and colleagues in this House in the coming months on this important process.

Question put and agreed to.