Graduates with student loans issued by an English local authority that entered repayment between April 2002 and April 2006 may see their loans sold by the government in the next few months.
This is the first of a planned four-year sales programme of loans issued between 1998 and 2012, which is expected to return £12 billion to the Treasury.
This first sell-off is expected to take several months, and the Student Loans Company (SLC) will write to those whose loans are sold on behalf of the Secretary of State for the Department for Education.
The SLC says the government has said the loans will be sold to a new independent English company, which the sole purpose of will be to own the loans. The details of this company will be confirmed once the sale process is completed.
Universities, Science, Research and Innovation Minister Jo Johnson says: “This government is committed to bringing public finances under control, and returning the budget to balance. As part of this we will look to sell assets where value for money to the UK taxpayer is assured.
“This sale will have no impact on people with student loans and will only proceed once we are satisfied that it represents value for money for the taxpayer.”
I’ve got one of these student loans, what does it mean for me?
Firstly, there are three types of student loan:
- “Mortgage style” student loans, which were taken out by students between 1990 and 1998 and are re-repayable over a fixed number of instalments irrespective of the amount outstanding.
- “Income contingent style loans”, which were taken out between 1998 and pre 1 September 2012 and are repaid based on income, normally via deductions from your salary if you’re employed or through self-assessment tax returns if you’re self-employed. Currently, graduates with this type of loan repay 9% of everything they earn over £17,495 pre-tax each year. Interest is currently charged at 1.25%.
- “Income contingent style loans”, which were taken out post 1 September 2012. These have different repayment thresholds and interest rates to 1998-2012 style loans.
Today’s announcement affects certain loans taken out between 1998 and 2002, although some loans taken out as late as 2004 might also be in scope if they entered repayment in 2006.
The mortgage style loan book has already been sold, and the government says there has been no decision to sell loans granted after September 2012.
However, unlike the sales of “mortgage style” student loans, which were sold in 1998, 1999 and 2013, sales of the income contingent loans included in this particular sale will continue to be collected by HMRC and the Student Loans Company (SLC).
Past student loan sales, in particular those taken over by a company called Erudio in 2013, have been widely criticised by borrowers following a series of administration errors.
This time round the SLC says: “You do not need to take any action as a result of the sale. If your loan is sold, Student Loans Company will still be responsible for administering your loan(s). This means the way you repay will stay the same and you will still receive your annual statements from us.”
It adds that although the loans will be transferred to an independent investment company:
- The individual and overall repayments you make will not change as a result of the sale.
- The way you repay your loan(s) will not change as a result of the sale.
- The way the interest rate is calculated will not change as a result of the sale.
- The terms and conditions of your loan(s) will not change as a result of the sale.