Government sells 1990-1998 student loans for £160m

Monday, 25 November 2013 12:49

The government has sold off £900 million in student loans that were taken out by 250,000 students between 1990 and 1998. 

The loans were sold to private collection agency Erudio Student Loans in an aim to further cut the nation's debt. However, it is important to note that the loans worth £900 million were only sold for a mere £160 million.

The government said it was finding it difficult to get students to repay their loans. It said the sale would not affect the terms and conditions of the loans and a private firm would be more likely to maximise repayments.

Of the loans included, 46 per cent of borrowers were earning less than the repayment threshold, 14 per cent were still repaying and 40 per cent were not repaying the loans as they should be under the repayment terms.

The Department for Business Innovation & Skills (BIS) stated that the sale would bring value-for-money for the taxpayer as the loans tended to have a poor return rate.

Universities minister David Willetts said: "The sale of the remaining mortgage style student loan book represents good value for money, helping to reduce public sector net debt by £160 million. The sale will allow the Student Loans Company to focus on supplying loans to current students and collecting repayments on newer loans."

Mr Willetts confirmed that current borrowers will be protected, with there being no changes made to their terms and conditions, such as the calculation of interest rates.

Of these 250,000 loans sold, 36 per cent of them were earning below the repayment threshold, while 40 per cent were not repaying their loans. These old loans, where individuals had to pay monthly over a period of five or seven years with interest charges at the Retail Prices Index rate, were the last of their kind.

However, payments can be delayed for a year if the borrower's income is below the 85 per cent threshold of national average earnings, which is currently stood at £28,775.

The UK government is trying to sell the entire student loan-book, currently worth £40 billion.

Erudio Student Loans is backed by a consortium led by CarVal Investors and Arrow Global Limited who are experts in consumer debt management.

Speaking on behalf of Erudio Student Loans, Stuart Lammin, Managing Director of CarVal Investors said:

"CarVal Investors, along with Arrow Global, is pleased to finalise the acquisition of student loans from the Student Loans Company and the government. We look forward to working with Erudio Student Loans to service these accounts given the consortium’s long-term experience in education finance and track record for delivering a high level of service to its customers.

"Erudio Student Loans will have to adhere to strict Office of Fair Trading (OFT) guidance about the treatment of borrowers which includes particular protections for vulnerable borrowers and those in financial difficulty. They have also committed to adhering to best-practice guidance issued by the Credit Services Association."

The sale highlights potential future problems in getting stidents to repay much higher loans since the cost of university tuition was tripled from 2011 and the potential extra cost to taxpayers.

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