Government plans to privatise the student loan book could see UK students saddled with higher interest rates and even more debt.
On the 27th June 2013, Government Minister Danny Alexander, announced that the Treasury was intending to sell the student loan book in order to give the public purse a cash boost of £10 billion. The intended sale would mean a one-off cash payment for the government and the removal of student loans from the public debt.
Many are worried about the implications of this sale for students. Taking student finance out of the public sphere could mean higher interest rates for both past and present students, despite government promises to protect the cap on interest rates.
Taking student finance out of the public sphere could mean higher interest rates for students
A report recently submitted to the Department for Business, Innovation and Skills suggested removing the cap on debt from student loans taken out between 1998 and 2012. This is likely to result in a rise in interest rates from 1.5% to 3.6%.
The Government maintains that it is taking steps to ensure that any borrowers who see their loans sold to the private sector, are in no worse a position than if their loans had not been sold. Specifically the Government has stated: “The method of determining interest rates for borrowers who took out pre-2012 ICR loans will not be changed by this Government, irrespective of whether a sale of the loans is taken forward”.
Critics argue, however, that this fails to take into account what could happen if attempts were made to change the interest rates for borrowers by a third party, such as a private financial company.
In light of the potentially negative implications of this proposal, a HM Government petition was started with the objective of fighting against the proposed privatisation of student loans. Petition creator, Dr Thomas Bowers, argues that the Government’s proposals are short sighted and claims that privatisation will allow private companies to profit from students and with no obligation to invest back into the UK economy.
There are similarly concerns that the intended privatisation, combined with proposals to remove the cap on student loan interest rates, will see many graduates saddled with loans which they will be unable to pay back within their working lives.
The University of Nottingham told Impact that they did not want to take a stance on student loan privatisation.