HC Deb 09 March 1999 vol 327 cc105-6W
Kali Mountford

To ask the Secretary of State for Education and Employment if he will make a statement on the outcome of the competition to sell a second part of the Student Loan Portfolio. [76009]

Mr. Mudie

My noble Friend the Minister for Education and Employment has today,Official Report, House of Lords, columns 20–21, announced the conclusion of the second sale of a portfolio of student loans to the private sector for around £1 billion in a written answer to Lord Burlison. 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 are involved.

My right hon. 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, Official Report, columns 101–02, to my hon. Friend the Member for Preseli Pembrokeshire (Mr. Lawrence).

HONOURS Trustee Limited have appointed the Student Loans Company, the existing administrator, to administer the sold loans on their 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 is below 85 % 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 £64m 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–£405m. This compares with estimated net present value costs of around £310m which we would have incurred had the loans remained publicly owned. The estimated cost to the Government of selling these loans will therefore be in the region of £85–£100m or 25–30 % 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.