Student loans and Public Sector Net Debt

There appears to be general scepticism about the government’s claim to be able to pay down Public Sector Net Debt through sales of an asset such as the student loan ‘book’. The IFS have just labelled the policy of funding new loans through selling old loans ‘economically nonsense‘, while in the comments under a recent article of his for wonkhe, Emran Mian doubts the claim.

Here’s an old quote we had from Anthony Szary of the Office for National Statistics when we were writing the ‘Third Revolution’ series for Research Fortnight two years ago.

“Public Sector Net Debt is calculated as government liabilities less liquid assets. Student loans are not a liquid asset, so they do not feature in the calculation. However, as noted above, government finances loans to students by issuing debt instruments (gilts), that are scored as government liabilities, which increase PSND accordingly. … Insofar as government will need to increase its liabilities by issuing more debt instruments, this will push up PSND. ”

The proceeds from any sale of the loans can be used to reduce the annual cash requirement and hence slow down the rate of growth of PSND. (Or if you like a ‘snapshot’ approach, with the loan proceeds included PSND is lower than it would otherwise be). As an asset, the loans don’t appear in PSND, when sold the cash they generate can be set against it.

The policy may still be economically nonsense, but the accounting explains why the government is not mistaken in making their claims.