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The £160m Sale of ‘Mortgage-Style’ Loans

The BIS Committee have got themselves into a bit of a tangle discussing the sale of mortgage-style loans in 2013 (§§58-65 of the report).

That sale saw the government receive £160m on an asset with a face value of £890m (what the outstanding balances say borrowers owe to the government).

So we know the price and we know the face value of the loans.

What we didn’t know was what the government thought those loans were actually worth (the fair or carrying value): how much income was going to come in and when.

Having those three distinctions in mind -price, fair value, face value – is essential for considering loan sales.

I was asked explicitly about the 2013 sale at the evidence hearing.  Read more…

“Logical flow-throughs” – is expansion funded by a sale? (redux)


with added relevance today

Originally posted on Critical Education:

Plashing Vole has shared some correspondence with Wolverhampton MP, Paul Uppal, relating to higher education and student loans. Uppal is David Willetts’s parliamentary private secretary, which makes one particular paragraph extremely interesting.

Regarding the proposed programme of student loan sales, Uppal writes:

Current market conditions are favourable and BIS advisors have confirmed there is potential interest from a range of buyers in investing in the loan book. This has informed the estimates of potential proceeds of approximately £12 billion over a five year period. It has been calculated that the additional outline of loans for the expansion of students numbers over the forecast period will be more than financed by proceeds from pre-2012 loan sales. If the sale of the loan book does not go ahead or does not provide the expected receipts, The Treasury will need to consider the impact on public sector net debt. This will be a…

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BIS Committee report into Student Loans published

The BIS Commitee has published its report into student loans. Two evidence sessions were held in December and January. I appeared at the first, David Willetts at the second.

Events may have overtaken the findings that do not simply echo the conclusions of the  National Audit Office in November.

At the weekend, Vince Cable announced that he will not authorise a sale of the student loan book. That means that the Committee’s concerns about getting value for money from the putative private sector loan purchasers are rendered academic for the time being. (I am grateful to the committee for the open discussion of the ‘synthetic hedge‘, a financial instrument devised specifically to overcome the interest clause on the income contingent repayment loans issued to those who commenced undergraduate study between 1998 and 2011.)

Cable told Liberal Democrat members:

“The government was considering the sale of student loans on the basis that it would reduce government debt. Recent evidence suggests this will no longer be the case. Given there is no longer any public benefit, Nick Clegg and I have agreed not to proceed with the sale.”

What implications might that decision have for higher education funding? The Committee’s report underscores just how confusing and inconsistent  ministers and the chancellor have been about any link between loan sale proceeds and the promised expansion of undergraduate places. Osborne’s Autumn Statement insisted that the first would pay for the second, though he retreated a few days later to a different claim: that the cash from purchasers would help the expansion through the early years.

In the January evidence session, Matthew Hilton, a civil servant in BIS, told the Committee:

 “It would be fair to say that the Treasury do intend to underwrite this policy. If there is a shock to their expected budgets that changes some of the planning that they have in hand, we would have to sit down and talk to them, as would any Department; but there is no logical flow through from a decision on the loan book to a decision on the expansion of HE budgets.”

Willetts sent a subsequent note insisting that “the announcement on removing the cap on student numbers is fully funded”.  But Willetts’s permanent private secretary told a constituent a few months later that were the sale to fail then these commitments would be reviewed. Apparently sources close to the Chancellor have been insisting that nothing has changed as the loan sale was earmarked to pay down public sector net debt: this shows a marked lack of understanding of the cash streams involved here.

As I said back in December, the Autumn Statement smacked of bad bunko gimmickry. The BIS Committee report stresses that the basics, such as the ability to value the loan book accurately, were not even in place back then.

§42 A common thread in our inquiry and that of the Committee of Public Accounts was the lack of a solid evidence base on the data underlying the student loan-book.

We should note that the Autumn Statement assumed that the equivalent of 65 per cent of loans issued would be repaid; we now have an official estimate of only 55%. On over £10billion of loans per year that’s a shortfall of £1bn. As things stand, we do not know what the immediate consequences for the expansion policy will be as a result of Cable’s stance. Cable spent yesterday afternoon/evening in an emergency meeting.

The department for Business, Innovation & Skills has not been able to provide a statement that would shed light on these matters, only that ‘There are no plans to conduct a sale during this parliament.’ I asked about further work on the sale and whether a tender might be published before the general election but have not yet had a reply.

The Committee offer the following summary:

§78 The Government appears to have committed itself to the sale of the income contingent loans before it has fully assessed the financial viability of such a move.



The OBR will amend its fiscal forecasts. New ones without the net loan sale proceeds will appear at the next Autumn Statement (December?).

2013 Autumn Statement – is HE expansion fully funded by loan sale?

Originally posted on Critical Education:

Back in December and January, I discussed here some problems with the figures presented in the 2013 Autumn Statement relating to the sale of student loans and how the gross proceeds would fund the expansion of undergraduate places. The problem was basically that the Treasury used an estimate of gross proceeds, rather than net, and thereby overstated the revenue generated by a sale of loans to the tune of roughly £1.7billion. If you sell loans to the private sector, then the private sector receives the repayments instead of you and you have to reduce your estimated income accordingly.

Appearing before the BIS committee in January, David Willetts denied that any ‘schoolboy howlers’ had been committed and promised to set out the proper figures in a written statement.

That statement has now been published on the BIS committee website.

“The headline remains that the announcement on removing the cap on…

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Sale of Student Loans – not in this parliament?

A tweet from the Social Liberal Forum conference today appears to suggest that Vince Cable and Nick Clegg have decided to oppose any sale of income contingent repayment loans.

Tuesday will see the publication of the BIS Committee’s report into student loans and their sale.


A BIS spokesperson said: ‘No formal decisions on timing have been made.’

Under the terms of the 2008 Sale of Student Loans Act, the decision to proceed with a sale rests Vince Cable as the relevant Secretary of State.


Warwick University Ltd – book review

My review for Radical Philosophy of the re-issue of Warwick University Ltd (1970) – edited by EP Thompson - is now available online.

It is hosted by Warwick University’s UCU branch, where you can also find proceedings of a conference held on 6 June 2014 to discuss the book.



Greg Clark – new minister for cities, universities & science

Willetts’s replacement will apparently split his HE and science responsibilities with his other job in the Cabinet Office as minister responsible for cities.

Greg Clark is an unknown quantity to me but he did say this about undergraduate funding in July 2011:

the purpose of our higher education reforms is to make sure that the courses that British undergraduates and postgraduates take are well taught and of a high quality so that they produce positive returns to individuals and the country – and not unserviceable debt for both.

I guess he gets to tackle that problem head on.


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