Posted by Noreen Curtin on 29th November 2013.

I was amazed to read in the press recently that the Government has taken the decision to sell off some of its student loans to a private debt collection agency (Erudio Student Loans). This currently totals £890 million and has been sold off for £160 million (for loans taken out between 1990 and 1998). Apparently, the £160 million is to help reduce the public sector debt.

But does it make sense to sell a loan book worth nearly £900 million for only £160 million? Apparently, the sale is meant to be the best value for money for the taxpayer. The Government were getting a poor return rate on the outstanding loans. ‘Of the 250,000 loans sold, around 46% are earning below the repayment threshold, 14% are still repaying and 40% are not repaying their loans in accordance with their terms’. The Government says this allows them to concentrate on administering and collecting new loans. So what happens in another 16 years when the ROI isn’t what they had hoped – do they just sell off that debt as well after significant losses to the tax payer have already been sustained?

As a student who studied between 1994 and 1997, I started paying off my student loan as soon as I could, when all I wanted to do when I got my pay packet at the end the month was enjoy spending some of it!! However, it needed to be paid off at some point so I took the decision to do it on my terms.
I remember my University friends deferring payment at the time, based on the fact that they went off travelling or were not earning the minimum salary required. Back in 1997, I was also one of those not earning the minimum salary required, but took the decision to start paying an incremental amount to ‘just make a start’. My view was it was always going to be my debt and no one else’s so it needed to be paid off!! Admittedly, I would have thought very differently if I wasn’t fortunate to have secured a job enabling me to start this off.

This was over 16 years ago, when I didn’t have to pay for my course fees either! To think there are still those that, for whatever reason, have deferred payment all this time, will now have these debts passed onto a debt collection agency is very daunting. What will the future hold for those now owing to the debt collection agency?

The real question however is should a private company make a profit from the public debt? Could the government not do more to try and recover the debt themselves? From the above figures it appears that a profit can only be made if the 14% who are currently repaying continue to do so (equates to £125 million) and they chase the 40% not paying in hope that they get 1-2% of them to make up the £35 million shortfall.
So what will the future hold for further education? The cost of university has itself significantly increased and now students have the added pressure that their loans may potentially be chased by a debt collection agency. Surely this is going to influence the percentage of the population who are already thinking is it all worth it? Or maybe it will attract students who have a genuine intention to repay the loan!

We will just have to wait and see…