This weekend we read in the Guardian of the confidential report prepared by Rothschild investment bank that indicates proposals to sell off the student loan book.
Its financial value lies mainly in the student loans issued after the introduction of tuition fees in 1998. Initiated by the Blair government, these fees were initially set at £1,000 per year. But in 2004 the rate was lifted to £3,000 and by 2010 the maximum fee was as much as £3,290. Together the value of this 1998-2012 student debt is reputed to be worth as much as £45 billion.
At the moment the interest on all pre-2012 student loans is capped either at the rate of inflation or the bank’s base rate plus 1% – whichever is lower. This rate-cap has until now acted as a deterrent to private entities, who are worried about the security of their investment given the risk of rising inflation.
To make the loans more attractive for sale, the Rothschild report recommends either that the risks be underwritten by government, or that the rates of interest be fully liberalised.
But both these proposals have serious negative implications.
The underwriting of private risk by government is a form of corporate welfare in which the taxpayer is effectively guaranteeing shareholder profit. It constitutes further evidence of the government’s efforts to transfer common wealth into the hands of a small number of private investors.
Lifting the cap on interest rates would subject all but those from the wealthiest circumstances to an indebtedness that they neither anticipated nor consented to.
Flying in the face of ministerial assurances that the terms of student loans would not be retrospectively changed, it is profoundly unethical.
These proposals seem attractive to the government because they would provide cash immediately, enabling it manipulate the national debt statistics in the lead-up to an election. But borrowers or future governments would be forced to carry the costs.
Indeed, the long-term financial wisdom of selling off student loans is extremely dubious. Martin Wolf of the Financial Times has described it as “economically illiterate”. As Andrew McGettigan has written, the “logic behind the sale is short-termist and contemptuous of citizens.”
The protests in Istanbul’s Taksim square began because the Turkish government planned to redevelop and commercialise Gezi Park, one of the last public green spaces in the city.
This is exactly what is happening under our noses in Britain.
Parks are only the most obvious kind of asset societies hold in common. Alongside them we have come to see a variety of other entities as public goods: health services, housing, education and certain forms of property among them. Since World War II, states have invested in these goods and held them in trust for the benefit of all.
But these are exactly the shared assets that are systemically being transferred to private hands under the guise of “marketisation”.
The logic here is problematic on a number of fronts. First, it is by no means clear that the current government’s recent efforts to marketise undergraduate degrees through trebling tuition fees is in fact more “efficient” than other systems. Indeed, all evidence at the moment tends exactly to the contrary.
Second, who stands to benefit from such policies? As already mentioned, they serve to concentrate common wealth in the hands of an already rich elite.
Third, even if a case was able to be made for a public economic benefit, we need to weigh monetary gain against other kinds of value. Land might indeed be made more economically productive when it is farmed, owned, built on and leased out. But don’t we value public goods that can’t be sold off, that are not turned to instrumental ends and that are accessible by all?
Do we really want a small number of wealthy private investors to own, and trade and exact rent on knowledge and the institutions that produce it?
We need to oppose these proposals, and oppose the exploitative and profiteering vision of society to which they point.
… read this piece at The Conversation UK