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. Read the rest of this entry »