§ Dr. Howells
I have today announced the sale of a portfolio of student loans for £1 bn. This is the outcome of a policy first announced in September 1996. The sale has been achieved after a vigorous competition and we have accepted the most competitive bid. NatWest Markets was the successful bidder.
The loans sold are those made under the current scheme. None of the new income contingent loans available from the 1998–99 academic year are involved.
My right hon. Friend the Chancellor of the Exchequer said in his statement of 10 July 1997 that we would continue the policy of student loan debt sales as part of our pledge to work within the spending plans already announced for this year and next. The sale also underlines our commitment to developing a wide range of public-private partnerships which involve a transfer of risk to the private sector. This sale transfers to the private sector much of the risk of loans defaulting.
The Student Loans Company, the existing administrator, will continue to administer the loans sold for at least for the next five years. Borrowers who are currently repaying their loans or who have made deferment arrangements will consequently notice little change. We have also taken steps through the Education (Student Loans) Act 1998, to ensure that the position of borrowers is protected. Borrowers will retain their existing rights of deferment, where their income is below 85% of average earnings, and interest rates will continue to be linked solely to inflation.
These rights mean that existing student loans are provided at subsidised rates. Additional subsidies will therefore need to be paid to the purchaser to reflect this. Given the value of loans sold, and that some of the loans will be outstanding for a considerable length of time, the estimated net present value of these subsidies is likely to be in the region of £350m. This compares with estimated present value costs of nearly £300m which would have been incurred by the Government had the loans remained publicly owned. Annual subsidy payments will be high in earlier years and reduce over time as borrowers repay more of their debt and the total level of debt outstanding falls.
During the 1998–99 financial year a gross subsidy of about £60m will be paid to Finance for Higher Education Limited (FFHE), a company formed for the purpose of acquiring the assets by NatWest Markets. However, part of the gross subsidy payment will be repaid to the Government through the administration charges paid to the Student Loans Company and tax receipts on private sector profits. The estimated cost to the Government in 1998–99 of selling these loans will therefore be in the region of £15m above the £40m cost of keeping loans in the public sector.
The agreement between the Government and FFHE for the purchase of the loans, with commercially confidential information removed, will be placed in the Library of the House on completion of the sale.750W
A second competition to sell a further tranche of student loan debt involving loans made under the current scheme is being planned later this year.