Student Loan Portfolio Sale (Hansard, 9 March 1999)

The Minister of State, Department for Education and Employment (Baroness Black stone)

I am today announcing the conclusion of the second sale of a portfolio of student loans to the private sector for around £1 billion. The sale has been achieved after a very vigorous competition and we have accepted the most competitive bid. A consortium of the Nationwide Building Society and Deutsche Bank AG was the successful bidder. As a result, the portfolio will be sold to HONOURS Trustee Limited, a company formed for the purpose of acquiring the assets.

The loans sold are those made under the original loan scheme. None of the new income contingent loans introduced at the beginning of the current academic year is involved. My right honourable friend the Chief Secretary to the Treasury has confirmed the policy considerations which have determined the Government's approach to student loan debt sales in a Written Answer today to the honourable Jackie Lawrence.

HONOURS Trustee Limited has appointed the Student Loans Company, the existing administrator, to administer the sold loans on its behalf. Borrowers who are currently repaying their loans or who have made deferment arrangements will consequently notice little change. We have legislated previously to ensure that the position of borrowers is protected. Borrowers will retain their existing rights of deferment, where their income in below 85 per cent. of average earnings, and interest rates will continue to be linked solely to inflation.

These rights mean that original scheme student loans are provided at subsidised rates. Subsidies will therefore be paid to the purchaser to reflect this. During the 1999–2000 financial year a subsidy of about £64 million will be paid.

Part of the gross subsidy payment will be repaid to the Government through the administration charges paid to the Student Loans Company and tax receipts on private sector profits. Given the value of loans sold, and that some of the loans will be outstanding for a considerable length of time, the estimated net present value of these subsidies is broadly in the region of £395 million to £405 million. This compares with estimated net present value costs of around £310 million which we would have incurred had the 21WA loans remained publicly owned. The estimated cost to the Government of selling these loans will therefore be in the region of £85 million to £100 million or 25 to 30 per cent. above the cost of keeping loans in the public sector over the lifetime of the portfolio.

The agreement between the Government and HONOURS Trustee Limited, with commercially confidential information removed, will be placed in the Library of the House on completion of the sale.