Government to Sell Off Student Loan Book: What does that mean for us?

Government to Sell Off Student Loan Book: What does that mean for us?

Gordon Brown marked the first day of the new political session by announcing a fire-sale of Government assets including the student loan book, a move that has led some to question the merits of the Government’s recession-beating plan.
The announcement, which will see roughly £3bn worth of Government-held assets sold to private investors, means that the student loan book will become the responsibility of a private company that will then become accountable for the collection of all outstanding student loans. Future loans will continue to be administered by the Government.
This is not the first time that such an idea has been in the pipeline. Between 1997 and 1999, Gordon Brown sold £4bn worth of student loans in an attempt to reduce the mountain of public debt. The idea was also mooted in 2007, but was rejected as being a bad deal for the taxpayer. It seems pertinent to question why conditions are deemed to be more favourable now, at a time when selling prices are much lower than in a buoyant market.
The basic theory behind the sale of the student loan book is that it will raise money in the short term, with a quick sale providing money for the taxpayer. It is painfully obvious that something has to be done as the treasury needs a fresh injection of funds to help combat the public debt; however, this particular plan is flawed. Any potential buyer would pay the government less than the full value of the loans (it has been estimated that they will be sold at around 95% of their value) meaning that the Government would lose out in the long run and that any private company would profit from the interest gained from loan repayments. Put simply, students would pay the same amount of money as before, but a portion of this money would line the pockets of a private company rather than being put back into Government and being used for common benefit.
Interestingly, Labour is not the only party that supports this move. The Conservatives have stated that the move was “probably necessary”, though a spokesman emphasised that this would only work if a raft of spending cuts were also implemented. The Liberal Democrats are the only mainstream party that oppose the stripping of Government assets under the present conditions. Spokesman Vince Cable warned that “this is not a good time to sell assets” and commented that “the Government have a terrible record with the history of gold sales and the sale of QinetiQ. There is now a proposal to sell land in a market in which development land is at about 15 to 20% of its peak value. Is that not an absolute guarantee that the Government will not get value for money?”
The Chief Secretary to the Treasury, Liam Byrne, outlined a plan to raise £3bn from assets within the next two financial years. This seems to contradict the 2007 valuation of the student loan book, which at £6bn was considered twice as much as is expected to be received for the whole package of assets in today’s markets.
The main issue will be the timing of any sale, for the time frame of the asset stripping will prove to be vital if the Government wish to receive fair compensation for the sales. While they cannot afford to wait too long to sell (though all of the assets mentioned have been touted before as items for sale, with little result) they would be foolish to sell at the bottom of the market, when prices are at their lowest.
This has not stopped them before and unfortunately is unlikely to stop them now. But the question still remains: why are we selling anything at the moment if it’s not going to be worth it?

Monish

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