Update on the sale of student loans
This House of Commons library paper gives an overview of the first sale of a tranche of English income-contingent student loans. It gives background to the sale and discusses the impact of the sale on borrowers and whether value for money was achieved by the sale. The Government announced the end of the sales programme in Budget 2020.
End of the student loan sales programme
The Government announced at Budget 2020 that it would end the sales programme. Two tranches of income contingent loans have been sold raising a total of £3.6 billion. The programme was meant to continue to 2022-23 and raise a total of £15 billion.
This briefing paper was last updated in September 2020 and will no longer be updated.
The first loans which were introduced in 1990 were known as ‘mortgage –style’ loans, these loans were superseded in September 1998 by income-contingent loans.
The entire mortgage-style loan book has been sold off to private investors as a result of three separate sales which took place between 1998 and 2013.
In the Budget 2007 the Government announced plans to sell off more of the loan book and the Sale of Student Loans Act 2008 put in place provisions to allow the sale of income-contingent student loans issued between 1998 and 2012. The Act applied to England and Wales.
In December 2013 the Government announced its intention to sell off some of the English income-contingent loan book. Subsequently George Osborne stated that the removal of the cap on student numbers in 2015 would be funded by the sale of more student debt to private companies. In the event the expected sale did not occur due to the market conditions at the time and the policy stalled.
However, a sale remained Government policy and was referred to in the Autumn Statement 2014, the Budget 2015 and in the March 2016 Budget.
Finally in February 2017 it was announced that a sale would go ahead and the first sale of income contingent loans was completed in December 2017. The sale covered loans issued by English local authorities that entered repayment between 2002 and 2006. The sale achieved £1.7 billion from 1.2 million loans with a face value of £3.5 billion held by over 400,000 borrowers. This represented a write off of 51 per cent of the face value of the loans.
A second sale of a tranche of Plan 1 loans that entered repayment between 2007 and 2009 was completed in December 2018. The sale was of loans with a total face value of around £3.9bn and achieved £1.9bn.
Issues around the sale concerned the value for money of sales and the impact on borrowers. A report by the National Audit Office in July 2018 concluded that the first sale had achieved value for money, however other commentators have said that the sales show that the goverment "prefers cash today over larger sums of cash tomorrow".
A Government review of the sales programme was published alongside Budget 2020. This concluded that “…following the ONS’ recent change in the accounting treatment of student loans, sales would now have new impacts on borrowing and net investment … As such, the review announces that the government will not make further sales of student loans.”