Results are out! Find what you need...fast. Get quick advice or join the chat
Hey there! Sign in to have your say on this topicNew here? Join for free to post

Old student loans to be sold off, interest rates retrospectively raised

Announcements Posted on
    • Thread Starter
    • 39 followers
    Offline

    ReputationRep:
    Haven't seen this anywhere else.

    A secret proposal carried by Rothschild (:rolleyes:) for the government proposes changing the terms of pre2012 student loans (which the government can do) so that graduates pay back more in order to make it attractive for investors to buy the debt from the government. This could well mean that some " could work until retirement without ever paying off their debt if the interest rate cap were removed."

    This is imo very scandalous that the government would willingly add more debts onto the average graduats (many of whom are strugguling to get jobs that matches up to the skills they developed at university) so that they and their friends earn more money. Oh yeah, well done Libs dem :yy:

    http://www.guardian.co.uk/money/2013...-secret-report

    Thoughts?
    • 0 followers
    Offline

    ReputationRep:
    http://www.guardian.co.uk/money/2013...-secret-report

    A confidential report commissioned by the government has proposed redrawing the terms of student loans taken out over the past 15 years, that would make them more expensive to pay back for 3.6 million borrowers in England alone.

    The proposal to increase the interest rates on the £40bn worth of loans is the most controversial of a series of options contained in a Whitehall-commissioned study examining how the coalition could privatise the entire stock of student loans issued since 1998.

    Increasing the amount that students would be forced to pay back would make the loans more attractive to buyers.

    The document, prepared by Rothschild investment bank, was submitted to the business department in November 2011, but is understood to still be under active review. It has never been made public, or been seen by higher education professionals.

    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)".

    A statement from the Department for Business, Innovation and Skills confirmed that ministers were still looking at how to privatise the pre-2012 student loan book. It noted: "The government has not made any changes to the pre-2012 loans interest rate terms … Work on the feasibility of selling the pre-2012 student loan book is ongoing."

    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 – many 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.

    In order to sell as much of the loan book as possible, the financiers advise that the government underwrite the risk with a financial instrument called a synthetic hedge, in effect using the public finances to guarantee returns to private investment.

    Alternatively, they suggest dumping the cap on loan rates altogether. If that proves impossible, the team suggest "an 'offer of compromise', including a payment holiday, or an interest-free period or a different cap".

    "The [financial] risk is best taken by government...; second best is it being taken by graduates...; and lastly by investors who want inflation protection."

    Removing the cap would, however, burden graduates with years of extra repayments, lasting in some cases until the end of their working lives. At the moment, the cap on student debt taken out before 2012 keeps repayment rates at 1.5%. Lifting it would mean a rate of 3.6%, in line with RPI in March 2012. One indicative calculation suggests that an employee on £25,000 a year, with £25,000 of undergraduate loans taken out before 2012, could work until retirement without ever paying off their debt if the interest rate cap were removed.

    Loans taken out since 2012 have interest rates fixed at RPI plus 3%.

    The proposals were greeted with fury by lecturers' and students' representatives. "This government is showing that it's more concerned with helping investors make money than defending the interests of student and taxpayers," said Simon Renton of the University and College Union. "Students and taxpayers deserve better than a Hobson's choice between payday lending or another giant PFI."

    Lifting the cap would also fly in the face of ministerial assurances that there would never be a retrospective change in terms. Speaking to a parliamentary select committee last June, universities minister David Willetts told MPs: "In the letter that every student gets there are some words to the effect that governments reserve the right to change the terms of the loans. That is a text that has always been there for students, but we have no plans to change the framework we have explained to the House of Commons."

    The report was obtained by the False Economy website through a freedom of information request. Although over 90% of it was redacted, the blacking-out was light enough that virtually the entire report can be read. It was analysed for the Guardian by higher education analyst Andrew McGettigan.

    "Many people have speculated about the problems associated with selling student loans," said McGettigan, author of The Great University Gamble. "This is the first authoritative confirmation we've had that the main impediment to sale is the interest rate protection in place for existing borrowers. Under these proposals, this government will get cash now but borrowers or future governments pick up the tab."

    "The government must immediately rule out this outrageous suggestion," said Liam Burns of the National Union of Students. "Despite pushing them to establish in law that conditions on student loans could not be altered retrospectively the government refused and gave weak assurances that they had no plans to do so. Now we see their own advisers are suggesting that very move."

    I know this is only a proposal, but even the fact that this is being considered is absolutley outrageous. I cannot wait to get these Tories out of govenment, it is sickening what they are doing to the country - and I say this as someone who would have voted for them in 2010, if I had been old enough. They're disgusting.
    • 8 followers
    Offline

    ReputationRep:
    Disgraceful, do they not want anyone to go uni?
    • 0 followers
    Offline

    ReputationRep:
    What can we expect from Rothchilds. They're the spawn of Satans jealous half brother


    Posted from TSR Mobile
    • 0 followers
    Offline

    ReputationRep:
    (Original post by Skip_Snip)
    Disgraceful, do they not want anyone to go uni?
    Yes, the very rich. Funny how they don't propose a retrospective fee on all the free university education most of the cabinet received.
    • 3 followers
    Offline

    ReputationRep:
    And they wonder why fewer people can go to University these days?! And now they're penalising the people that have already been as well as the people looking to start? We've enough to deal with paying £9000 PER YEAR without this on top to it, too. Ridiculous. Never mind your potential buyers, why not think about the students for once? No, of course you won't, because all you're interested in is the money, greedy fat cats.
    • 2 followers
    Offline

    ReputationRep:
    [
    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)".
    This is what rankled with me the most. This is how they’re going to sell it is it? “You have it much better than new entrants, so you should have to deal with this”. Awful. What about you ****s who got to go to university for free and got loan-free maintenance grants? How about you pay it off since you have had it the best? Moronic.
    • 32 followers
    Online

    ReputationRep:
    (Original post by Skip_Snip)
    Disgraceful, do they not want anyone to go uni?
    How will this affect people's likelihood of going to uni? This affects people already holding a degree or at uni.
    • 8 followers
    Offline

    ReputationRep:
    Why not make all those fatcats who went to uni for free retroactively pay for their degrees?
    • 11 followers
    Offline

    ReputationRep:
    I'd like to see that try to fit with the unfair contract terms act...
    • 1 follower
    Offline

    ReputationRep:
    I really can't see this happening. Moreover, a similar article in the Telegraph sees the Conservatives wanting to lower the threshold where one starts to pay back their loan to £18,000. The Lib Dems are staunchly against this. With the Lib Dem power of veto in the commons no bill can be tabled until after 2015 and that is even if the Conservatives have a majority.

    The fact that 35bn - 40bn of student debt will never be paid off proves that they stuffed up the figures at the planning stage. But, at the same time, what other way is there to stop the feckless going to university to study events management or Heavy metal studies (Nottingham Trent students I am talking about you)?
    • 1 follower
    Offline

    ReputationRep:
    The fact is the government is set lose billions on student loans and so see the need to privatise them in order to get them off their hands. No private investor is going to purchase the debt if in due course it becomes worthless because of the inflation cap. By getting rid of the cap, a private investor gets their return, and the government gets rid of unwanted debt.
    • 32 followers
    Online

    ReputationRep:
    (Original post by Meat is Murder)
    I really can't see this happening. Moreover, a similar article in the Telegraph sees the Conservatives wanting to lower the threshold where one starts to pay back their loan to £18,000. The Lib Dems are staunchly against this. With the Lib Dem power of veto in the commons no bill can be tabled until after 2015 and that is even if the Conservatives have a majority.
    It seems the Tories have finally realised the LibDems duped them into pushing through a policy that taxes the richest graduates and favours the poorest graduates when compared to the previous fee system.
    • 1 follower
    Offline

    ReputationRep:
    (Original post by PythianLegume)
    It seems the Tories have finally realised the LibDems duped them into pushing through a policy that taxes the richest graduates and favours the poorest graduates when compared to the previous fee system.
    I have never thought about it this way before. Interesting.
    • 4 followers
    Offline

    ReputationRep:
    (Original post by PythianLegume)
    How will this affect people's likelihood of going to uni? This affects people already holding a degree or at uni.
    They also have to pay even more when paying off loan...
    When is the next general election anyone?
    • 7 followers
    Online

    ReputationRep:
    Surely they can't do that? That's not what we agreed to when we took on the loan, it's completely unfair to change the terms once we already have the debt.
    • 32 followers
    Online

    ReputationRep:
    (Original post by cleveradam)
    They also have to pay even more when paying off loan...
    When is the next general election anyone?
    2015 at the latest.
    • 7 followers
    Offline

    ReputationRep:
    Are the Conservatives really trying to drive themselves out of office? All the future high earners that they will want votes from won't forget being shafted like this now. Increasing the tax burden of a significant proportion taxpayers is a very different thing to screwing over 18 year olds.
    • 4 followers
    Offline

    ReputationRep:
    (Original post by PythianLegume)
    2015 at the latest.
    Wow. 2 years of horror and 60-70 odd changes to education.
    • 31 followers
    Online

    ReputationRep:
    Read through the fog of anger.

    This is only a proposal, it's neither a White Paper nor even a Green Paper. Clearly a few bods had a brainstorming session on how to reduce the loans burden to the state and came up with this idea. That will have spawned the study because there were too many important issues to consider before deciding whether it is something the government may want to pursue if there were no 'killer concerns'.

    And the biggest concern is whether it will be a vote or even election loser and no government will touch that.

Reply

Submit reply

Register

Thanks for posting! You just need to create an account in order to submit the post
  1. this can't be left blank
    that username has been taken, please choose another Forgotten your password?
  2. this can't be left blank
    this email is already registered. Forgotten your password?
  3. this can't be left blank

    6 characters or longer with both numbers and letters is safer

  4. this can't be left empty
    your full birthday is required
  1. By joining you agree to our Ts and Cs, privacy policy and site rules

  2. Slide to join now Processing…

Updated: June 19, 2013
New on TSR

GCSE mocks revision

Talk study tips this weekend

Article updates
Useful resources
Reputation gems: You get these gems as you gain rep from other members for making good contributions and giving helpful advice.