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Sale of old, mortgage-style loans raises £160million

November 25, 2013

BIS has put out a press release in the last 30mins confirming the sale of part of its student loan portfolio to Erudio Student Loans, a consortium of ‘consumer debt management’ companies.

The sale relates to the ‘mortgage-style’ maintenance loans issued to those who commenced undegraduate study between 1990 and 1998. Two previous sales were undertaken in the late 90s, and this latest sale shifts the final tranche of those loan accounts off the government’s books.

The face value of those loans – total outstanding balances – is £900m (£734m England) but they remaining accounts have been performing poorly (40% in default; 46% earning under the repayment threshold of £28,775) so the government has only received £160million from the sale. This may well be under the ‘fair value’ recorded in the government’s accounts, though the latest BIS accounts do not disaggregate the mortgage-style loans from income contingent repayment loans on this score.

David Willetts put it this way:

The sale of the remaining mortgage style student loan book represents good value for money, helping to reduce public sector net debt by £160 million. The private sector is well placed to maximise returns from the book which has a deteriorating value.

The sale will allow the Student Loans Company to focus on supplying loans to current students and collecting repayments on newer loans. Borrowers will remain protected and there will be no change to their terms and conditions, including the calculation of interest rates for loans.

All in all, it’s a paltry deal when you consider that from 2014/15, the government will be backing £10billion of new loans annually.

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