Why you should care about the student loan fire-sale, even if you aren't a student

Danny Alexander is out to get the worst return for your investment he can.

The announcement that the student loan portfolio is going to privatised has, rightly, sparked a huge response. It is a terrible idea, which will come back to haunt future governments and current graduates.

But the worst of it isn't the effects on graduates themselves – at least, not the direct ones.

The sale of the loan portfolio doesn't mean an immediate move to a US-style system of student debt. As far as we can tell (the proposals will need to be much more fleshed out between now and 2015, when the sale is planned to happen), the debt collection will continue to happen through HMRC, and at the same rates and with mostly the same rules as now. That means it will still be wiped out when a graduate gets old enough, it will still be paid back at 8 per cent of earnings above a certain threshold, and it will still not really count as debt you should be afraid of.

But there are two key problems which graduates might face as a result of the sale.

The first is the much-feared "sweetener", a change which the government might make to the student loan deal to make it a better proposition for commercial investors. As suggested in the secret Project Hero report, uncovered by the Guardian earlier this month, one possible sweetener is to remove the cap on interest rates, thus massively increasing the potential amount graduates would have to repay. The Project Hero suggestions are that this should be retroactive, affecting every graduate with outstanding debt.

Hopefully, that plan won't be put into action. Vince Cable, the business secretary, says the suggestions has been "ruled out categorically". A promise like that doesn't carry much weight from a Liberal Democrat, sadly, but maybe this time it's one they'll actually keep.

The reason to doubt them is the second thing that graduates should be wary of: commercial pressure.

The student loan contracts are mutable enough that nearly any change can be made to them. And once they have been sold, there will be a private company with a multi-billion pound investment in maximising their return from them. Any model of government power will tell you that a policy which has concentrated benefits and dispersed costs is one which gets heavily lobbied for, and this will no different. Expect lobbying for the debt to become a lot more like it is in the US: real rates of interest, and rules which make it impossible to default on, or not pay back, student loans.

When the sale happens, in other words, the fight isn't over. It's only just begun.

And even if the private lenders who buy the debt don't act on it, there's something else to consider: it removes a key commonality of interest between the Government and graduates.

While the government owns student debt, it is in its financial interest to ensure that graduates do well. If it leaves the younger generation to languish in unemployment, it won't get its investment back. That's no longer true.

But for all the risk to students, the bigger reason why the sale of student debt is stupid is because it's bad for the country.

It is, in essence, borrowing. The government is giving up income in the future to gain a lump sum now. And that's fine! It's the sort of thing which it should have done three years ago, not two years in the future, but whatever: it's nice to see that they're finally, grudgingly, painfully slowly accepting that the foundations of their entire economic structure are riddled with holes.

Except they're not. Because in a desperate effort to make it look like they aren't completely chucking out every belief they pretended to have, the Government isn't actually going to borrow the money. Which means that rather than taking advantage of what were, until last month, some the lowest bond yields Britain had ever seen, and what remains an astonishingly low cost of borrowing… we aren't. Instead, our government is twisting itself in contortions, discussing student loan debt as though it's a pile of newspapers sat at the back of the treasury, which they mustn't be "compulsive hoarders" of, in order to sell at a discount an asset which is significantly more valuable in public hands than private. It's politically driven economic illiteracy.

And so to encourage the purchase, to eke some cash out of this shoddy deal, the government is likely to implement a "synthetic hedge". Basically, it lets them sell the student loan debt as though they'd implemented the changes to repayment rules, without actually doing it. They promise to pay the purchaser a sum equivalent to what they'd be getting if the rules had been changed, and then kick the question of how to actually pay that sum to a future government. It's cowardice dressed up as a business plan, and it's coming here in 2015.

Photomontage: Getty Images/Alex Hern

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Getty
Show Hide image

In the 1980s, I went to a rally where Labour Party speakers shared the stage with men in balaclavas

The links between the Labour left and Irish republicanism are worth investigating.

A spat between Jeremy Corbyn’s henchfolk and Conor McGinn, the MP for St Helens North, caught my ear the other evening. McGinn was a guest on BBC Radio 4’s Westminster Hour, and he obligingly revisited the brouhaha for the listeners at home. Apparently, following an interview in May, in which McGinn called for Corbyn to “reach out beyond his comfort zone”, he was first threatened obliquely with the sack, then asked for a retraction (which he refused to give) and finally learned – from someone in the whips’ office – that his party leader was considering phoning up McGinn’s father to whip the errant whipper-in into line. On the programme, McGinn said: “The modus operandi that he [Corbyn] and the people around him were trying to do [sic], involving my family, was to isolate and ostracise me from them and from the community I am very proud to come from – which is an Irish nationalist community in south Armagh.”

Needless to say, the Labour leader’s office has continued to deny any such thing, but while we may nurture some suspicions about his behaviour, McGinn was also indulging in a little airbrushing when he described south Armagh as an “Irish ­nationalist community”. In the most recent elections, Newry and Armagh returned three Sinn Fein members to the Northern Ireland Assembly (as against one Social Democratic and Labour Party member) and one Sinn Fein MP to Westminster. When I last looked, Sinn Fein was still a republican, rather than a nationalist, party – something that McGinn should only be too well aware of, as the paternal hand that was putatively to have been lain on him belongs to Pat McGinn, the former Sinn Fein mayor of Newry and Armagh.

According to the Irish News, a “close friend” of the McGinns poured this cold water on the mini-conflagration: “Anybody who knows the McGinn family knows that Pat is very proud of Conor and that they remain very close.” The friend went on to opine: “He [Pat McGinn] found the whole notion of Corbyn phoning him totally ridiculous – as if Pat is going to criticise his son to save Jeremy Corbyn’s face. They would laugh about it were it not so sinister.”

“Sinister” does seem the mot juste. McGinn, Jr grew up in Bessbrook during the Troubles. I visited the village in the early 1990s on assignment. The skies were full of the chattering of British army Chinooks, and there were fake road signs in the hedgerows bearing pictograms of rifles and captioned: “Sniper at work”. South Armagh had been known for years as “bandit country”. There were army watchtowers standing sentinel in the dinky, green fields and checkpoints everywhere, manned by some of the thousands of the troops who had been deployed to fight what was, in effect, a low-level counter-insurgency war. Nationalist community, my foot.

What lies beneath the Corbyn-McGinn spat is the queered problematics of the ­relationship between the far left wing of the Labour Party and physical-force Irish republicanism. I also recall, during the hunger strikes of the early 1980s, going to a “Smash the H-Blocks” rally in Kilburn, north London, at which Labour Party speakers shared the stage with representatives from Sinn Fein, some of whom wore balaclavas and dark glasses to evade the telephoto lenses of the Met’s anti-terrorist squad.

The shape-shifting relationship between the “political wing” of the IRA and the men with sniper rifles in the south Armagh bocage was always of the essence of the conflict, allowing both sides a convenient fiction around which to posture publicly and privately negotiate. In choosing to appear on platforms with people who might or might not be terrorists, Labour leftists also sprinkled a little of their stardust on themselves: the “stardust” being the implication that they, too, under the right circumstances, might be capable of violence in pursuit of their political ends.

On the far right of British politics, Her Majesty’s Government and its apparatus are referred to derisively as “state”. There were various attempts in the 1970s and 1980s by far-right groupuscules to link up with the Ulster Freedom Fighters and other loyalist paramilitary organisations in their battle against “state”. All foundered on the obvious incompetence of the fascists. The situation on the far left was different. The socialist credentials of Sinn Fein/IRA were too threadbare for genuine expressions of solidarity, but there was a sort of tacit confidence-and-supply arrangement between these factions. The Labour far left provided the republicans with the confidence that, should an appropriately radical government be elected to Westminster, “state” would withdraw from Northern Ireland. What the republicans did for the mainland militants was to cloak them in their penumbra of darkness: without needing to call down on themselves the armed might of “state”, they could imply that they were willing to take it on, should the opportunity arise.

I don’t for a second believe that Corbyn was summoning up these ghosts of the insurrectionary dead when he either did or did not threaten to phone McGinn, Sr. But his supporters need to ask themselves what they’re getting into. Their leader, if he was to have remained true to the positions that he has espoused over many years, should have refused to sit as privy counsellor upon assuming his party office, and refused all the other mummery associated with the monarchical “state”. That he didn’t do so was surely a strategic decision. Such a position would make him utterly unelectable.

The snipers may not be at work in south Armagh just now – but there are rifles out there that could yet be dug up. I wouldn’t be surprised if some in Sinn Fein knew where they are, but one thing’s for certain: Corbyn hasn’t got a clue, bloody or otherwise. 

Will Self is an author and journalist. His books include Umbrella, Shark, The Book of Dave and The Butt. He writes the Madness of Crowds and Real Meals columns for the New Statesman.

This article first appeared in the 25 August 2016 issue of the New Statesman, Cameron: the legacy of a loser