This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.guardian.co.uk/commentisfree/2013/jun/14/editorial-student-loans-graduates-risk

The article has changed 2 times. There is an RSS feed of changes available.

Version 0 Version 1
Student loans: graduates at risk Student loans: graduates at risk
(4 months later)
This week, the Guardian has published details of a government-commissioned plan to privatise student loans. This is a scheme the government would rather you didn't know about: while it has been the subject of speculation within higher education, it has never been made public or discussed with university professionals. When it was released after a Freedom of Information request, the vast majority was redacted; it was only because of the black ink used that the text could be read. To be clear: this week's story was not some politician's kite-flying – it revealed what a government-appointed investment bank considers to be the best options for a sale of state assets.This week, the Guardian has published details of a government-commissioned plan to privatise student loans. This is a scheme the government would rather you didn't know about: while it has been the subject of speculation within higher education, it has never been made public or discussed with university professionals. When it was released after a Freedom of Information request, the vast majority was redacted; it was only because of the black ink used that the text could be read. To be clear: this week's story was not some politician's kite-flying – it revealed what a government-appointed investment bank considers to be the best options for a sale of state assets.
Which makes the details of the study all the more worrying. Because after months of testing market opinion, the bankers concluded that the conditions to protect graduates from paying too much on their debt were too big a deterrent for potential investors. No surprise there: a book of loans whose repayment depends on the future incomes of their borrowers might be judged to be privatising the unprivatisable. Nevertheless, the financiers gave it a good go.Which makes the details of the study all the more worrying. Because after months of testing market opinion, the bankers concluded that the conditions to protect graduates from paying too much on their debt were too big a deterrent for potential investors. No surprise there: a book of loans whose repayment depends on the future incomes of their borrowers might be judged to be privatising the unprivatisable. Nevertheless, the financiers gave it a good go.
One of their suggestions was to lift the cap on interest rates. Students taking out loans before 2012 pay either bank base rate plus 1% or RPI – whichever is lower. Lifting the cap sounds small, but at the moment it would more than double the interest rates paid by former students. For many graduates the change could add on extra years in the red. The retrospective change would breach primary legislation from 1998 that puts the cap in law – and contradict assurances from the university minister David Willetts and colleagues that the cap is safe.One of their suggestions was to lift the cap on interest rates. Students taking out loans before 2012 pay either bank base rate plus 1% or RPI – whichever is lower. Lifting the cap sounds small, but at the moment it would more than double the interest rates paid by former students. For many graduates the change could add on extra years in the red. The retrospective change would breach primary legislation from 1998 that puts the cap in law – and contradict assurances from the university minister David Willetts and colleagues that the cap is safe.
Let us repeat: this proposal has not been disclosed by Vince Cable's department for business judges as it does not "lie in the balance of public interest" to do so. One can imagine the same being said by the officials who hatched the raid on Cypriots' bank accounts. The other suggestion is for taxpayers to bear the risks of a divergence between RPI and base rate through a financial product as a hedge. Either graduates are dumped with more risk or taxpayers are; investors get a safe return.Let us repeat: this proposal has not been disclosed by Vince Cable's department for business judges as it does not "lie in the balance of public interest" to do so. One can imagine the same being said by the officials who hatched the raid on Cypriots' bank accounts. The other suggestion is for taxpayers to bear the risks of a divergence between RPI and base rate through a financial product as a hedge. Either graduates are dumped with more risk or taxpayers are; investors get a safe return.
Mr Cable has not committed to following either suggestion; but neither has he taken them off the table. Selling the loan book is part of the government's hunt for state assets that they can sell now – no matter what the consequences. It also forms part of a process of turning British universities into a full-blown market. That method has not been fully disclosed or subject to proper scrutiny and debate. But some prospective elements, such as retrospectively changing the terms for people who left university years ago, should worry us all.Mr Cable has not committed to following either suggestion; but neither has he taken them off the table. Selling the loan book is part of the government's hunt for state assets that they can sell now – no matter what the consequences. It also forms part of a process of turning British universities into a full-blown market. That method has not been fully disclosed or subject to proper scrutiny and debate. But some prospective elements, such as retrospectively changing the terms for people who left university years ago, should worry us all.
Our editors' picks for the day's top news and commentary delivered to your inbox each morning.