Student loans taken out between 1990 and 1998 and worth £890m have been sold to a private company for £160m, the government has confirmed, in a highly controversial decision.
The head of the National Union of Students (NUS) has slammed the move as "ridiculous" and "extremely concerning", while the government insists the sale represents "good value for money".
SEE ALSO: Student Loans To Be Sold Off
A company called Erudio Student Loans was named as the successful bidder on Monday, and now owns the remaining 17% of mortgage style student loans taken out by those who began courses between the eight year period.
Universities and Science Minister David Willetts said the price paid exceeds the estimated value of the remaining student loans, and added the private sector is "best placed" to collect the remaining debts.
“The sale of the remaining mortgage style student loan book represents good value for money, helping to reduce public sector net debt by £160m," he said. "The private sector is well placed to maximise returns from the book which has a deteriorating value.
“The sale will allow the Student Loans Company to focus on supplying loans to current students and collecting repayments on newer loans. Borrowers will remain protected and there will be no change to their terms and conditions, including the calculation of interest rates for loans.”
But as noted in a HuffPost UK blog earlier this week, 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."
Toni Pearce, President of NUS, said the move was "incredibly problematic" and would affect everyone who had taken out a student loan.
“This announcement is extremely concerning and is one that will see the public subsidising a private company making a profit from public debt, which is incredibly problematic," she said. “The impact of this sale won’t only affect borrowers, but will affect everybody.
"The simple fact is that having these loans on the public books would be better off for the government in the long run. Selling off the loan book at a discount to secure a cash lump sum now doesn’t make economic sense."
Earlier this year, one university head anonymously told The Guardian: "There is quite a lot of evidence that students and parents don't really understand the new financial system, so you could play around with it quite easily."
The NUS has raised concerns the terms and conditions on student loans are not protected by law - even though David Willetts has assured the union they would not be changed as a result of the sale.
“The current student loans system is completely unsustainable," Pearce added. "Forcing debt onto students as a way of funding universities is an experiment that has proven not to work and there needs to be some serious thought about moving the system away from this ridiculous model.”
Of the loans sold, approximately 46% are earning below the repayment threshold; 14% of borrowers are still repaying and 40% are not repaying their loans in accordance with their terms.
Speaking on behalf of Erudio Student Loans, Stuart Lammin, managing director of CarVal Investors said: "CarVal Investors, along with Arrow Global, is pleased to finalise the acquisition of student loans from the Student Loans Company and the government.
"We look forward to working with Erudio Student Loans to service these accounts given the consortium’s long-term experience in education finance and track record for delivering a high level of service to its customers."