Student loan sell off could hit graduate pay, protesters say

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The Student Assembly Against Austerity, leading the protests, say that the sale could quickly lead to increased student loan repayments, cutting graduate pay.

"If the student loan book is privatised the new owners will seek to maximise their profits - hiking up interest rates is a key way that they could make lots of money out of graduates," Aaron Kiely, the NUS Black Students' Officer and Student Assembly Against Austerity spokesperson told me today.

The sale of the student loans book to private debt firms was confirmed in last year's Autumn Statement.

The Government expects to raise approximately £12 billion from the sale, some of which will be used to allow universities to admit more students and to fund science, technology, and engineering courses.

But, supporters say, the money raised doesn't justify the potential increase in repayments for graduates.

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Selling off student loans

Old student loan debt has been sold off three times before, most recently last November.

At that point, the Government sold £900 million of student debt taken out before 1998 (the old 'mortgage like' loans) to a private debt firm for £160m.

The next tranche, debt taken out after 1998, is up for sale next and is far more valuable because graduates started paying interest based on their income: it's expected to raise at least £40 billion.

This policy of selling off Government owned debt to private companies is objectionable in itself for some but that's not the crux of this week's protests.

Instead, campaigners are arguing that the sell off will have real consequences for millions of graduates: it will mean they have to pay more each month in student loan repayments, effectively cutting their earnings at the pay packet.

Will interest rates rise?

Ministers have promised that companies that are sold student loan debt will not be able to increase interest rates in order to make more money from borrowers.

It's right there in the Autumn Statement: "Borrowers' loan terms
will be fixed prior to a sale".

In reply, protesters point to a 2011 feasibility study into the loan sale commissioned by the Government and never made public (it was leaked last year).

The study looked at a number of options for making the loan book attractive to private buyers, including raising interest rates on all loans taken out after 1998.

Currently, interest rates are capped and linked to inflation so any private investor buying loan debt risks losing out on returns if inflation rises above the base rate.

It seems unlikely that the Government will follow this recommendation, however.

Changing loan terms retrospectively would be a hugely unpopular move - with good reason, it's patently unfair - and would be unlikely to get through parliament.

Speculation remains that terms will change for new loans - that is, for new students starting university, not those already enrolled - and may be more likely to change for those who took a loan - i.e. started university - after 2012, when the repayment rules changed again.

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Student loan repayment rules

If there is a sale the Student Loans Company would continue to administer the loans, so repayments would continue to come out of PAYE or with SLC guidance for people paying tax by self assessment.

As it stands, repayments will also stay the same.

That means those that took a loan from 1998 to 2011 pay back 9% of anything they earn over £16,365 a year, plus interest calculated as RPI or the Bank of England base rate (whichever is lower) plus 1%.

Anyone that started a university course in or after 2012 has a similar deal.

They pay back 9% of earnings as soon as they earn more than £21,000 a year, plus interest of either RPI or RPI and another 3% after graduation, based on a sliding scale of earnings.

This makes student debt some of the cheapest debt you can ever hold.

Protests to continue

Protests against the sale of the student loan book will take place in 50 campuses around the UK this week.

On Friday, London students will protest outside the department for Business, Innovation and Skills (event page here) and more protests are planned for the end of the financial year in March.