My Mick Brooks, Ealing Southall CLP, personal capacity
The government has just announced a privatisation of student loans. Formerly, the loans, all made before 2006, were to be repaid to the Government. Now they are being snapped up by financiers.
No wonder. The loans are being sold in four tranches. The first three tranches are selling at between 86.5p and 99p in the pound against the actual value of loan repayments due. But the fourth tranche, consisting of 54 per cent of the total, has been sold at a knockdown, piddling 8.5p in the pound. Not surprisingly, this issue has been heavily oversubscribed. The result is that loans with a face value of £3.54bn have been given away for £1.7bn – less than half price.
What is going on here? We are being robbed by privatisation, that’s what. The Financial Times estimates that the taxpayer will take a £800m hit from the sale. Contrary to all the evidence, the Government has smugly declared that the deal represents ‘value for money’, but their calculations for this remain secret. They say the £800m is just an ‘accounting loss’, but then it’s not their money – it’s ours.
The Financial Times suggests that “Part of the motive for the sale is to reduce public debt”, but that’s just a cheap conjuring trick – ‘now you see it, now you don’t.’ The debts are still there. The ex-students still have a duty to repay them. It’s like the Public Finance Initiative racket run by New Labour and the Tories. With PFI, hospitals and schools were financed with private ‘off balance sheet’ loans that proved much more expensive than government borrowing. On student debts the Tories sell the loans book off to financiers for a song. In both cases the state is ripped off by private capitalist interests.
All these tranches of debt were charges on the (uncertain) stream of student repayments in the future. The Tories call this process ‘securitisation.’ This reminds us of the collateralised debt obligations (CDOs) and other financial instruments devised by swindlers in the years running up to the Great Recession of 2008. Sound mortgages on houses were mixed up on the same pieces of paper as debts on housing for which the sellers knew borrowers couldn’t possibly keep up the payments. Then they were wrapped up like mysterious Christmas presents. That was the idea – so that nobody knew which piece of paper was sound and which was a pile of rubbish.
The Student Loan company was set up in 1989 to lend money to students before tuition fees were introduced and the interest rate charged was then much less than the current wopping 6% It is these earlier loans that are involved here.
The financial burden on students is now becoming unbearable. The Institute for Fiscal Studies estimates more than three-quarters of graduates will not repay all their borrowings. In 2015-6 it was reported that 40% of current student debtors had been unable to pay back a penny. It is argued that the reason student loans are being sold off cheap is because they are, “basically . . . a distressed debt-like instrument.” So perhaps critics are right to maintain that student loans will not be such as safe way of making money from old rope in future.
In fact the whole policy of lumbering students with a lifelong burden of debt has been a monumental failure. It has created a debt bubble that is bound to burst.
Anger at the increasing cost of higher education is mounting among students, with only one in three reckoning they are getting value for money from their tuition fees, according to the National Audit Office. Meanwhile the continuing furore about university vice-chancellors’ exorbitant pay packages makes them wonder where the lifetime debts they build up to pay the fees actually go.
As Anthony Hilton comments in the London Evening Standard, “Jeremy Corbyn proposed scrapping student loans and was howled down by the Conservatives who said it would cost billions and the nation could not afford it. Well, if we are likely to get back less than half the money anyway, his policy looks a lot less expensive. And in social terms the few billion it might cost would make a massive difference to the lives of hundreds of thousands of young people and might easily be considered money well spent“
December 11 2017
