UK Secret Report Proposes Privatizing 3.6 Million Student Loans

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The British government, in hock to its eyeballs, currently oversees up to £45 billion in college student loans. Looking for an out, Whitehall commissioned Rothschild investment bank to prepare a secret report on how to make those loans attractive to investors so the loan contracts could be privatized.

Student_Loans_Predatory_LendingSince a modicum of transparency still exists in the UK, the secret study was leaked, and The Guardian reported on it last week.

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Of major concern to 3.6 million student borrowers who must pay the loans back, Rothschild has recommended retroactively raising the interest rates on loans going as far back as 1998.

The Thursday Guardian article reported:

Any move to increase the interest rates on loans already taken out could add extra years of repayments even for those who left university long ago.

In the report, dubbed Project Hero, the authors suggest a script for ministers to persuade graduates to accept the worsening of their conditions. “We all live in difficult times,” they suggest ministers argue. “You have a deal which is so much better than your younger siblings (they will incur up to ¬£9,000 tuition fees and up to RPI+3% interest rates)”.

While the government says no final decision has been made, and the feasibility study is ongoing, The Guardian notes:

Ministers already plan an auction of the remaining student loans issued between 1990 and 1998. Although they have a face value of £900m, they are expected to fetch a fraction of that amount. The real value lies in the loans issued after 1998, which are worth between £35bn and £45bn Рmany multiples more than all the state assets otherwise lined up for sale.

At the moment, the interest on all student loans taken out before 2012 is capped. Graduates pay interest at either the RPI measure of inflation or banks’ base rate plus 1%, whichever is lower.

But in the privatisation study, Rothschild found that the rate-cap was a major deterrent to potential investors, who worried that if inflation outstripped the base rate they would lose out on returns.

You can read The Guardian article on the secret report here.

MCQUILLAN
Martin McQuillan

News of the secret report led Martin McQuillan, dean of arts and social sciences at Kingston University, London, to write in Monday’s Guardian that plans to sell off student loans to private investors undermine trust in the whole university process. He goes on to say:

The Rothschild report, cruelly dubbed ‘project hero’, shows that from the very beginning of its tuition fees policy, the government has been looking to sell the whole thing off, including pre-2012 loans taken out on quite different terms…

‘Project Hero’ proposes to deepen this public-private muddle by either transferring further public money for private gain through this synthetic hedge or using powers that only a government has to increase loan terms with the same result of enriching private investors. In the meantime, graduates who had hoped to pay off their loans will see further years of debt stretching before them with middle earners most badly hit.

You can read all of McQuillan’s op-ed here.