Sale of student loans Contents


In 2017 government sold student loans with a face value of £3.5 billion for £1.7 billion, which is a return of only 48p in the £1. We did not expect government to recover the face value of the loans as repayments rely on people’s earnings, which means there is no realistic prospect of them all being repaid in full. But we do expect the Treasury and the Department for Education (the Department) to get the best possible deal on behalf of the taxpayer. In this case, government received too little in return for what it gave up—its own analysis shows that it could have expected to recoup the £1.7 billion sale price in only eight years.

Treasury’s focus on reducing its ‘public sector net debt’ measure is a short-sighted approach which fails to convince us that the deal is the best one for public sector finances in the long term. The willingness to accept offers from investors if they exceed government’s theoretical ‘opportunity cost’ of holding the assets runs the risk of accepting too low a price.

Forecasting future repayments is inherently an inexact science, but it is crucial to determining how much cash the government is prepared to accept now in place of uncertain amounts of cash in the future. Government has not convinced us that its model of future cash flows provides a good basis for deciding at what price to sell student loans. This is only the first in a series of sales, and as the government has now announced a second sale it must think carefully about whether its modelling is sufficiently developed to do justice to the real long-term value of these public assets. Finally, we have concerns about the transparency of the deal. We accept that releasing all the details of the transaction has the potential to weaken the government’s hand in negotiations, but it is too easy to fall back on that as an excuse not to reveal information where there appears to be no public interest reason to prevent disclosure. Government should be transparent about who is investing in the loans and potentially profiting from public assets.

Published: 22 November 2018