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The commercialisation of our education makes no sense

16th December 2013

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As you may or may not already know, George Osbourne has recently confirmed fears over the sale of the student loan book in his autumn statement. The comment was discretely slipped into the speech with such adept subtlety that viewers would be forgiven for not noticing at all, as Osbourne mentioned briefly that “new loans will be financed by selling the student loan book”.

Student debtAlready £900m worth in loans taken out from 1990-1998 have been sold for the bargain price of £160m to private debt collectors. However this figure is just the tip of the iceberg. The government’s ambitious plans were outlined in Chief Secretary to the Treasury Danny Alexander’s statement to parliament, where he revealed “We will take action to sell off £15 billion worth of public assets by 2020. £10billion of that money will come from corporate and financial assets like the student loan book.”. 

But what does this mean for you as a student? Well, these worrying plans first came to light when the details of a heavily redacted secret 2011 report dubbed Project Hero, commissioned by the Government and compiled by Rothschild investment bank, was revealed through a freedom of information request.

The report suggested raising interest rates on all student loans over the past 15 years from its current cap at 1.5% to a rate of 3.6% in order to make the sale more attractive to investors. This affects around 3.6 million people.

According to the Guardian, “One indicative calculation suggests that an employee on £25,000 a year, with £25,000 of undergraduate loans taken out before 2012, could work until retirement without ever paying off their debt if the interest rate cap were removed.”

The government has undoubtedly tried it’s best to reassure students that they will not be adversely affected, with a spokesman for the Department of Business, Innovation and Skills denying there will be any changes to borrowers terms and conditions, stating “Interest won’t go up, borrowers’ terms and conditions will not change, and the system will still be administered by the Student Loans Company and HMRC, collecting repayments via the PAYE system”.

However, Tory Minister of State for Universities Dave Willets has made clear to parliament that “In the letter that every student gets there are some words to the effect that governments reserve the right to change the terms of the loans..” With Nick Clegg’s empty promises over tuition fee’s still ringing in the ears of many students left out-of-pocket, most are sceptical to say the least.

This sets a worrying precedent, once loans are sold and in the hands of private investors, what controls are there to prevent them from changing the terms and conditions as they see fit? If the Government is planning on retrospectively making changes to contracts, where is the line drawn as to how much they can change the originally agreed upon rates?

Fears also arise that once they are in control private debt collectors will be much more aggressive in reclaiming the debt, possibly employing bailiffs and raising pressure on lenders to pay up. They will seek only to maximise profit for themselves.

Even ignoring the clear dangers, the policy makes little economic sense.

Osbourne has stated that “new loans will be financed by selling the student loan book”, but even a child could see the flawed logic. This ‘cut-and-run’ policy offers absolutely no sustainability and will simply reduce funding for education in the future as students will be paying back loans into the hands of private profit-seeking organisations, as opposed to the treasury. This will increase the burden of debt on not only students, but the country as a whole. Furthermore, it was recently announced that by 2014-15 the government will be borrowing £10bn annually, dwarfing any short-term returns gained by the sale.

Almost unbelievably, the Rothschild report also recommended creating a ‘synthetic hedge’ that would guarantee investors against the risk of lower than expected returns, compensating them with taxpayer money for any possible losses, a move which has not been ruled out by government. Considering the rising number of delinquent loans is at an all-time high of 11%, privatising loans in such a way could lead to another subprime lending crisis akin to the housing bubble of 2008, with the taxpayer bailing out banks for lending unaffordable student loans.

The consequences of such action will result in not only a financial burden for students, but a social one, as they are gripped by the manacles of debt from an early age. By selling the student loan book, this Government has sold your chance at a future, and turned education (seen by many as a human right) into simply another commodity to be traded on the open market, leaving you to work harder, for longer and for less.

With such an all-out assault on education from all sides, be it in the tripling of tuition fees, abolition of EMA, 15% pay cuts for lecturers over the last four years, reductions to student bursaries, or privatisation of the student loan book and coupled with the rising cost of living for all, tensions are fast rising, and it can only be a matter of time before things bubble over as they did in 2010.

The Student Assembly Against Austerity is organising a week of national action in February against the sell-off.

To sign up your campus and find out what you can do to act, visit their website.

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