Has the United Kingdom sold their student debt?

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Has the United Kingdom sold their student debt?

Posted 30/10/2013 by Coral Dow

On a recent Q&A program Education Minister Christopher Pyne, in response to a question about selling HECS debt, stated: ‘Britain have sold their HECS debt as an asset and we should investigate whether that is a sensible move for us to do so.’ This Flag Post looks at the UK experience of selling some of their student loan; of a 2007 proposal to sell more that did not proceed and of recent proposals to again sell part of their student debt asset.

Pre 1998 debt
The UK Labour Government introduced an income contingent student loan scheme similar to Australia’s HECS HELP programme in 1998. The student loan scheme that had existed since 1990 was a loan with fixed rate repayments over five years in 60 equal monthly instalments repayable from the April after graduation or when their gross income exceeded the threshold of 85 per cent of national average earnings. These loans were called Mortgage Style Loans.

In 1998 the UK Government announced a sell off the Mortgage Style Loans and the Education (Student Loans) Act was amended to facilitate the sale. The amendments enabled the Government to make subsidy payments to the purchaser and to prevent existing loan conditions being changed by the purchaser.

Two sales of the student loan debt of £1 billion each were made in 1998 and 1999.

A House of Commons Library Research paper concluded:

The Government received £1 billion for each of the two sales of the student loan portfolio. The face value of the loans sold was £1.02 billion and £1.03 billion in 1998 and 1999 respectively. As the interest rate of student loans was below market level the Government paid a subsidy [£350 million in 1998 and £395 million in 1999] to the purchasers to reflect this and make the sale attractive to the private sector. The difference between this and the cost that the Government would have incurred by holding on to the loans was the net cost of the sell off. The Government benefited by the transfer of risk to the private sector.
At present this is the only student debt that has been sold. 

2007 proposal
In June 2007 total student loan debt for England was £18.1 billion. In the UK’s 2007 Budget the Government announced plans to sell £6 billion of the debt over the period 2008-11.

When the Sale of Student Loans Bill 2007 was introduced the Government expected the loan sale programme to proceed indefinitely and extend to loans that are made in the future as well as those already on the loan book. It also expected that ‘transactions will only proceed if they represent good value for money and include a genuine transfer of risk to the private sector; terms and conditions for individual borrowers will stay the same and Government will retain control of all loan arrangements and regulations, including interest rates and repayment thresholds’.

In June 2009 the Minister of State, Department for Innovation, Universities and Skills, Lord Drayson, told the Parliament that market conditions did not allow sales to make a good return for the taxpayer and they would look for sale opportunities when market conditions improved. 

No sales were made.

2013 proposal
In March 2013 the UK Government announced it would sell off the last of the pre 1998 Mortgage Style Loans. In the media release it stated ‘The remaining loans owned by the government are mostly either in deferment or in arrears, so total annual repayments are low. The loans to be offered for sale have a face value of around £900 million but, the market value will likely be significantly lower’.

In relation to Income Contingent Loans Danny Alexander, the chief secretary to the Treasury, told the House of Commons in a speech on infrastructure spending in June 2013:

We will take action to sell off £15 billion worth of public assets by 2020. £10 billion of that money will come from corporate and financial assets like the student loan book. And the other £5 billion will come from land and property.

No details are yet available but media discussion, in the Guardian and New Statesman based on a Rothschild Investment Bank report commissioned by the Government and obtained under FOI suggests that conditions for a successful sale would have to provide incentives to the purchaser, such as the ability to change the borrowers’ conditions, which were not permitted under the 2007 legislation.

The UK student loan debt is estimated at £40 billion. To date only £2 billion has been sold.


  • 21/01/2014 1:39 PM
    Martin Butterfield said:

    Is it known what the payback rate was for the sold loans? If so, how does that compare with the rate when the Government owns the asset.

  • 21/01/2014 1:39 PM
    Carol Ey said:

    The House of Commons Library research paper does provide some information on repayment rates. We are not aware of any evidence of a change in rate following the sale, but the loan conditions did not change so it is probable that repayment rates were not affected.

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