Since the Guardian‘s scoop about “Project Hero”, the secret Government report which proposed retroactively raising the price of student loans, there’ve been a couple of extra points raised which deserve thinking about.
The first is about the language used. Ministers were given a script, by which they might sell the plans to recent graduates. They were supposed to tell them that:
We all live in difficult times. 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); it won’t make any difference to how much you pay in the short or medium term, just how long you pay it for.
The timing of the report is important to bear in mind, here. It was finalised after the Government had already approved, but not yet implemented, the post-2012 fee regime. A fee regime which was described as “fairer – opening the doors of universities to everyone, regardless of where they’re from” and “the fairest option on the table – fairer than the current system and fairer than the graduate tax too” by David Cameron, and “a system of graduate contributions that is fair for all” by David Willets.
Few students going in to university in 2012 will have thought that they were experiencing a “fairer” system than their older siblings did; so it’s interesting to know that exactly at the same time that ministers were making these pronouncements, the experts they’d hired to work out how to squeeze the most out of the graduates were busy telling them that it was self-evident that the fee regime was being made much worse.
The second point is the motivation for the changes. Raising the interest rate payable on loan balances won’t get any extra money to the government now, when the vast majority of loans taken out since 1998 remain outstanding. Instead, it will increase the time taken to fully pay off the loans, in some cases pushing it all the way back to the 25-year/retirement maximum. That means as time goes on, and people who would have paid back their loans carry on paying off the interest, more money comes into the state.
But this is a government supremely, myopically concerned with the deficit now. If they were able to defer pleasure, they’d have waited to cut the deficit until we were out of depression, after all. So why do it? To make the loan book more appealing to private investors.
The idea of selling off the student loan portfolio has been mooted for a while now. It’s an easy way of turning a bunch of future income streams into one handy payment. And if that sounds a bit like a daytime TV advert for debt refinancing, that’s because it is. The Government would inevitably sell the debt – which is estimated at between £35bn and £45bn – at far below what they would get if they held on to it. That’s partially because you always lose cash if you divest yourself of risk, but it’s also because this is not a sale which we can expect to be entered into with the Government negotiating at strength. It’s such a political football that any potential buyer will know that once the decision’s been made, they aren’t going to back track – and so offers below par will be accepted to save face.
That’s even more likely to be the case if the Government decides to privatise the loan book before the election in 2015. That will be a fire-sale to remember.
If the measures proposed in Project Hero are enacted, it won’t be the end of the fight over student finance – just the start of the next battle.