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The misleadingly named Student Loans Company

October 15, 2021

Why that title?

Well, the name seems to mislead people into thinking that the provider of student finance is a private institution, potentially making profit out of students, when it is in fact publicly owned.

There are 20 shares in the SLC: 17 are owned by the Department for Education (which has responsibility for English-domiciled students) and another three, each of those owned by one of the devolved administrations.

When you want to see what’s going on with student loans you look at government accounts: national, departmental or those of devolved administrations.

OK. So what’s the point of mentioning this factoid?

I believe that the misunderstanding about the publicly-owned nature of the SLC contributes to thinking that leads to other confusions, such as those surrounding function of the interest rate in student loans and what the effect of reducing them would be.

Here’s a former Higher Education minister getting into a pickle in an article that even has the title, “Student Finance? It’s the interest rate, stupid”.

Let’s leave aside the misunderstandings about the recent ONS accounting changes and concentrate on the claim that reducing interest rates would “address the size of the debt owed itself”.

The government is looking to reduce public debt, but lowering interest rates would only do this in the long-run, if the loan balances eventually written off were written off by making a payment to a private company to clear those balances.

As it is, reducing interest rates on loans mean that higher earners will pay back less than they would otherwise and government debt would be higher in nominal terms (all else being equal). (I do support reducing interest rates on student loans, but for different reasons).

There is probably another confusion here regarding the Janus-faced nature of student debt: it is an asset for government (it is owed to government) and a liability for borrowers. The outstanding balances on borrowers’ accounts are not the same as the associated government debt.

When the government thinks about public debt in relation to student loans, it is thinking about the borrowing it had to take on in order to create the student loans.

Imagine that I borrow £10 in the bond markets to lend you £10 for your studies: I have a debt to the markets and an asset, what you owe me. The interest on the former and the latter are not the same and the terms of repayment on the latter are income-contingent so I don’t expect to get sufficient repayments back from you to cover my debt to the markets.

Student loans are not self-sustaining. It requires a public subsidy – any announcements about loans in the spending review at the end of the month will be about how much subsidy the government is prepared to offer.

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