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No changes to interest rates, but what about repayment thresholds?

October 4, 2013

The National Union of Students has just released a letter from David Willetts regarding the proposed sale of student loans. The president’s accompanying blog cites a ‘win’ for the NUS here as Willetts confirms that the government will not pursue Rothschild’s recommendation to alter the interest rate terms for existing borrowers so as to ensure a better price from any purchaser.

This claim of success is a little surprising given that such assurances had been given by both Willetts and his boss, Vince Cable, three months ago. (Though it should be noted that at the time we published our original story in The Guardian it took the government four days to remember that they had ‘comprehensively dismissed those proposals two years ago’.)

Any claims to success are also somewhat premature. The point to draw out of Willetts’s letter is that the government is considering freezing the repayment threshold for these ‘pre-2012 ICR loans’ after 2015. Similarly, the government has still not ‘made’ the promised regulations that would fix the repayment threshold for ‘post-2012 ICR loans’ – initially set at £21 000 for 2016/17 – will be raised in line with earnings each year subsequently.

It is not clear whether the NUS considers such freezes to be changes to terms and conditions (student loan agreements are extremely vague in this regard …). I am keen to support the NUS’s pledge to ‘keep up the pressure to secure genuine protection for borrowers’ terms and conditions’, but the president cannot seem to admit that the government has no intention of fixing terms and conditions in law.

I’d also stress that the suggestion that terms would be ‘negotiated down prior to a sale’ is somewhat misleading. The 2008 Sale of Student Loans Act gives the government permission to sell without consent and without consultation. Changes to the interest rates on ‘pre-2012’ loans would require primary legislation akin to that which was used in 2011 to change the interest rates for the new loans issued to those starting since 2012. But changes to the repayment threshold and repayment rate do not.

Opposition to a sale needs to be organised on a broader basis than the NUS’s ‘moral’ position – any such sale to third parties will lose money in the long run. The government is still paying an annual subsidy to those who bought loans in 1998 and 1999– that liability is  valued at £250m today and only expires in 2028. If any sale proceeds expect to be told the headline price, not the terms of the ‘synthetic hedge’ needed to woo a buyer.

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