The Public Accounts Committee has published its report into Student Loan Repayments. It does not add much to the National Audit Office report from November and certainly lacks the colour of its student loans evidence session at which Margaret Hodge belittled the unprepared mandarins.
It’s worth drawing out the strongest point: the department for Business, Innovation and Skills is not in a position to make any robust assessment of the value of the loan ‘book’. This means that it has no robust way to assess ‘value for money’ in any sale of the income contingent repayment loans.
§9 We were told that the value for money of a sale would depend on a comparison of how much purchasers are willing to pay against an estimate of what the loans are worth. But to make this comparison, the Department needs a reliable and accurate forecasting model so that it can make a sufficiently robust estimate of the loan value in the first place, which it has not yet been able to do with any confidence.
These promises would then be stacked together for each university class or cohort (for example, the class of 2018), securitised, and sold to investors at home and abroad. Through the securitisation process, investors would acquire an equity interest in the average income of the entire cohort. Because average income moves with inflation, these securities would be largely risk-free, and therefore would be very attractive to investors.
Under my proposal, no one would be forced to pursue high-income occupations in which they were not really interested for fear of being otherwise unable to pay their education debts.
… the securitisation process would offer the giant, insatiable, worldwide pool of private capital – currently out there looking for a safe place to go – a way to invest in the earning potential of the product of the nation’s public institutions of higher education. Instead of merely being used to create economic weapons of mass destruction, the advanced techniques developed by the financial services industry would now be able to be used for a far more constructive purpose – creating investment vehicles of mass education.
I will be speaking at the University of Northampton on Thursday 13th February. The topic will be the planned sale of income-contingent student loans to the private sector.
Title: ‘Project Hero’ & the student loans sell-off
Time: 11am
Venue: Delepre Lecture Hall, Park Campus, University of Northampton
The is a public event: all are welcome and it’s free.
On Friday I wrote a swift blog about a written answer provided by David Willetts about estimated ‘cash expenditure’ to students at private providers in coming years.
Willetts’s statement read:
The estimated cash expenditure by financial year is (i) £400 million in 2013-14 and (ii) £600 million in 2014-15. We do not estimate a specific RAB charge for students at private colleges. Our current estimate of the RAB charge across all full-time undergraduates is around 40%.
- Many of the students supported in this way will be studying lower level undergraduate qualifications such as HNC (level 4) and HND (level 5), rather than full undergraduate degrees (level 6). It is probably unreasonable to attribute the same estimate of non-repayment (40%) for these loans: all things being equal, non-repayment should be significantly higher. Even accepting that lower ‘RAB’ figure, the government is subsidising those loans to the tune of £160m in 2014/15 and £240m in 2015/16.
- There is no mention of maintenance grants. Last year maintenance grants were £90m, assuming similar expansion that figure should increase to £140m and then £215m. Since grants are entirely expenditure, the total expenditure subsidy to those students would be £300m in 2014/15 and £455m in 2015/16.
On 29 January, in a written answer to a parliamentary question tabled by Liam Byrne, David Willetts made the following statement:
The estimated cash expenditure by financial year is (i) £400 million in 2013-14 and (ii) £600 million in 2014-15. We do not estimate a specific RAB charge for students at private colleges. Our current estimate of the RAB charge across all full-time undergraduates is around 40%.
Byrne asked about ‘the amount spent on student loans for students at private colleges’. Willetts has provided figures for ‘cash expenditure’. This is confusing in two ways: first, because expenditure would normally be taken to include spending on maintenance grants and estimated loss on loans from non-repayment (‘RAB’); second, because that estimated loss is not cash.
Still, let’s assume that’s what Willetts’s answer indicates – BIS’s budget will absorb £400m of expenditure in the current year relating to students at private providers, and £600m in 2014/15.
That represents a further massive expansion.
In 2011/12, the equivalent expenditure figure was £60m. £30m in grants & £30m RAB.
In 2012/13, it was £175m. £85m in grants & £90m RAB (Please note that this last figure do not tally with those released by the Student Loans Company. The £175m is a revised figure in circulation from October and is higher than those in the official ‘first release’.)
You might have an inkling now as to why emergency cuts to the BIS budgets for 2014/15 and 2015/16 are subject to ongoing wrangling at the highest levels of government. No official explanation has been provided for this ‘major fiscal challenge’. But here’s the best guess as to where to look – that overspend has to have consequences.
What’s going on in the private sector is spilling over into the budgets for the established universities.
Update – Sat 8 Feb
Even if the figures offered by Willetts relate solely to loan outlay in cash terms, they still represent a sizeable increase on the most recent years. In 2011/12, £90m of loans were issued to these students, in 2012/13 circa £250m.
Prior to the publication of the 2011 White Paper, I wrote an article on ‘new providers’ which outlined the threat of very rapid growth with this sector being ‘nurtured’ by government. It probably read quite speculatively three years ago. Less so now.
Update 10 Feb
I have since spoken to the BIS press office who have clarified the statement. See this new post.
Thew new issue of Discover Society has an overview from me on the new political economy of English Higher Education and the challenges for democratic governance.
I will be speaking at the University of Northampton on Thursday 13th February. The topic will be the planned sale of income-contingent student loans to the private sector.
Title: ‘Project Hero’ & the student loans sell-off
Time: 11am
Venue: Delepre Lecture Hall, Park Campus, University of Northampton
The is a public event: all are welcome and it’s free.
David Willetts appeared on 14 January.
Myself, Bahram Bekhradnia (Hepi) and Toni Pearce (NUS) appeared on 17 December.
David Willetts appeared before the BIS Select Committee this morning. A recording is available here.
At 11.59am (the video counter is set to horological time), he is asked about the Autumn statement’s use of gross proceeds from the planned sale of loans, instead of net proceeds, resulting in an overstatement of cashflow by £1.7billion.
Willetts claims that they did not ‘commit the schoolboy howler’ of which I supposedly accused them.
I’ll just make two points in relation to this specific point.
First, Willetts directs us to Table 4.32 of the OBR’s Economic & Fiscal Outlook.
This was and is precisely my point: those figures there undercut the ‘impact claims’ seen in Table 2.5 of the Autumn Statement as per the original post in December.
Second, it’s nice to have this confirmed because it took the Treasury two days back in December to provide a different account. Some of those following up my story were even told that you couldn’t interpret the OBR report in the manner Willetts now appears to accept.
So, we await with interest his single table setting out the various expenditures and cashflows associated with the sale and the planned expansion.
There’s an important point there. The Select Committee failed to press one of the key questions for BIS.
Yes, the Autumn statement shows the additional resource available for BIS in 2014/15 and 2015/16. Yes, that probably means that the first years of expansion are funded unconditionally.
The Select Committee ought to have asked directly about these years this morning.
What is the Resource Accounting and Budgeting charge – the estimated loss – for the loans issued to those starting higher education since 2012?
Back in 2010 it was 28-30%, in the 2011 white paper 32%, 35% earlier this year, 35-40% in October and now … ‘around 40%’.
That’s what Willetts told the House of Commons just before Christmas when asked what impact the ‘latest forecast of average earnings of growth’ would have on the estimates.
One percentage point ‘uptick’ is equivalent to over £100million of additional expenditure. The savings supposedly achieved by the new scheme are open to even graver doubts than the ones I set out in False Accounting? back in 2012.
After postponing twice, Willetts will appear before the BIS Select Committee to discuss student loans and their planned sale on Tuesday morning (14 January) at 11.30am.
Red Pepper have organised a teach-in at the House of Commons on the proposed sale of income contingent repayment loans.
This has been the main topic of discussion on this site over the last month. You can catch up here.
Other confirmed speakers include Stefan Collini and Natalie Fenton.
Time: 7pm
Date: Monday 13 January
Venue: Committee Room 12, House of Commons (enter via Cromwell Street entrance)
Please note that there is airport-style security at the Commons so you should allow at least 15mins for checks.
Critical Education 