Student loan sell-off 'won't change repayments'

The loans covering higher tuition fees will be sold to private buyers

There is a "clear intention" to sell to a private buyer the student loans taken out to cover higher tuition fees, says the Universities Minister David Willetts.

But he said this would not mean a change of terms for student repayments.

Mr Willetts told a committee of MPs that there would be a final assessment before "we push the button".

MPs were also told that selling off loans was not a pre-condition of plans to expand student numbers.

Mr Willetts, facing questions from the Business, Innovation and Skills Select Committee, gave the clearest signal so far of plans to sell "income-contingent" student loans borrowed after the introduction of tuition fees.

University expansion

There have been previous sales of earlier forms of student loans to private companies, but this would be the first time that the system brought in with tuition fees would face a loans sell-off.

David Willetts says the government is committed to lifting the limit on student numbers

"There is a clear intention to sell, we believe we can do it, but there is a final assessment before we push the button," the minister told MPs.

Mr Willetts said governments had always withheld the right to alter students' terms of repayment, but that the sale of loans should not be seen as meaning that payment rates would change.

The contract with the commercial owner would be expected to specify these terms, Mr Willetts told the committee.

The sale would be a multi-staged process, MPs were told, not least because future cohorts of students would create more loans and debts in the future.

Mr Willetts said this was not a "one-off asset" like shares in an industry that was being privatised.

The minister was asked whether wider plans to expand student numbers would be "totally screwed" without the funds raised by selling loans.

But MPs were told that the removal on restrictions on student numbers was not dependent on such extra funding.

"It is the government's settled policy that we should move in this direction," said Mr Willetts.

There were further details of how a privatised system could be structured, with one option being described as a "synthetic hedge" - a financial mechanism in which private buyers would be assured a revenue stream at the same time as students could continue borrowing and repaying as at present.

Pressed by MPs, the minister and his officials said there was no international example of how such a scheme would operate.

Threshold not reached

Mr Willetts also faced scrutiny over the cost of student loans, in terms of how much was not repaid.

The proportion of loans not repaid - for instance because graduates do not earn enough to reach the threshold for repayment - was at one stage forecast to be 28%, but is now running closer to 40%.

Mr Willetts told MPs that the difference was because earnings had failed to increase at the level expected - which meant that repayment levels had also been reduced.

The most recent official figures on student loans, grants and awards, from November 2013, show that two months into the 2013-14 academic year more than £11bn had been paid to more than 990,000 students.

On average, for 2012-13, students borrowed a tuition fee loan of £4,720, which is likely to rise as more students at university pay the higher level of fees introduced in 2012.

In addition, students on average borrowed £3,750 each in maintenance loans.

In terms of potential buyers of student loans, there had been previous unconfirmed suggestions that pension funds in North America could be among the candidates.

The universities minister was also asked by MPs about claims that funding to support disadvantaged students - the Student Opportunity Allocation - was at risk of being cut.

The Million+ group, representing new universities, has claimed that £200m could be cut. But Mr Willetts declined to be drawn on the suggestion and said that funding decisions had not been finalised.