Friday, 1 December 2017

A version of "Right to Buy" we can fully support

From the FT:

The UK government is set to book a loss of around £800m from its largest privatisation of student loans, raising questions over the valuation of tens of billions of pounds of remaining graduate debt.

The controversial sale of a batch of student loans this week is expected to raise around £1.7bn, according to a Financial Times analysis of deal documentation.

The loans, which had a face value of £3.7bn last year, are part of a total of £43bn in loans made to students up to 2012, which are currently on government books valued at just under £30bn, according to the Department of Education’s latest published accounts, as of the end of March this year.

Greater minds than mine have already pointed out, if the government happy to sell on the loans for 40p in the £1* to loan sharks, why not just give ex-students the right to buy back their own debts for 40p in the £1, i.e. pay 40% of the face value in cash and have the rest written off?

An MSP (can't track down who) said that this would be a good kind of "Right to Buy".


Barclays is acting as sole arranger for the sale, alongside bookrunners Credit Suisse, Lloyds and JPMorgan. Rothschild is acting as an independent adviser to the government.

If ex-students buy back their own loans, these middlemen won't earn their juicy commissions.

* The number is not plucked out of thin air, the loans being sold that cheaply are ones originally made between 2002 and 2006, so it's unlikely they'll ever be fully repaid. But let's gloss over that bit.


Steven_L said...

Is there actually anything in law to stop someone making the Student Loans Company an offer in 'full and final settlement'?

You send a cheque with a letter making the offer and stating that banking the cheque will be deemed acceptance.

If they bank it, and keep trying to collect your loan through PAYE, you would have to take them to court, which is the main downside I guess.

Steven_L said...

And funnily enough I was at uni from 2002 to 2006!

ontheotherhand said...

I've read that student loans are like a tax because they cannot be repaid early. Therefore the government is selling off a future tax stream. I understand that normal government bonds are an old fashioned form of 'selling off' future tax streams as well, but from general taxation. What's to stop them going crazy and packaging up and securitising all sorts of specific taxes?
Sell off future Stamp Duty?
Sell off future fuel duty?
Sell off future VAT?

Steven_L said...

You can repay student loans early if you want to (at least you can the 2002-2006 vintage I have). But the only interest is RPI inflation and you don't have to pay them off at all unless you are earning over a certain amount, so there is no point.

Sobers said...

Offering students the chance to buy their loans for less than face value wouldn't work though would it?

You'd just get 40% of all the good loans (its pretty likely that someone who can come up with 40% of the capital in one hit would be good for the whole amount over the period of the loan), and the bad loans would still default, so the payback to the State would be far less than the 40% that it gets this way.

The only reason the bonds are being sold at less than face value is that they know X% will default but not which ones. The discount is across the board, not on any given loan. If you attempt to buy your loan out you have immediately put yourself in the 'able to pay' pile and no lender with a brain would accept your offer.

Bayard said...

S, good point. It doesn't always pay to be cynical.

Mark Wadsworth said...

SL, surely that must be allowed? Discount for early payment?

OTOH, I've done that thought experiment before, selling of tax revenue streams. Then watch the investors squeal when the underlying taxes are phased out. Owning land is pretty much like buying up future LVT stream from that land.

SL, probably not.

S, yes of course, I did say that the figure was not plucked out of the air. If there an early repayment/discount option, then it would only be taken up by those who would have paid off in full with interest i.e. likely higher earners/those whose parents have a few bob to spare.

But the principle stands. In Denmark you can buy back your own mortgage.

Graeme said...

SL, currently RPI is about three times the gilt rate, which makes you wonder why they gambled on index linked being less than Bank rate.