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Sale of Student Loans Bill

I am grateful for the intervention. It is possible not only that the debt ends up in the assets of a fund or organisation supported by Government, but that it ends up in the assets of a fund that is on the verge of collapse. A Government permission should be necessary for the transfer of the debt once it gets on to the market because we cannot be sure where it will end up. Secondly, the measure is based purely on ideology and doctrine, according to which public debt is a bad thing and private debt is a marvellous thing. It is clear that financial markets object to public borrowing because they want the privatisation of all borrowing, as well as the privatisation of credit creation, which has happened to a large extent. There is no reason why the money should not stay on the public books. The only argument that the Government put is that it reduces the public sector borrowing requirement, but that effect is purely presentational. In the main, I would argue that public borrowing is good and private borrowing is often bad; the private debt situation has produced an enormous escalation of asset and house prices, while public debt and borrowing has produced investment and economic growth, and allowed the Government to steer the economy forward. The equation of public with bad and private with good is nonsense. There is no reason, ideologically, for such a transfer; there is no reason to sell the asset books. All that does is pretty up the PSBR figures. There is no guarantee that the money coming in—the Minister mentioned £6 billion—will be used for education. The National Union of Students, and the universities, I think, say that the money should go to education. I agree, but it is not—it is just going to general Government funds. My third point is that the private sector is not buying the debt out of sheer altruism or a love of supporting the student loans programme and getting more people into university. It is doing it for solid commercial reasons, and it will have to be paid. In the current state of the market, it will have to be paid substantially more to take up the debt than it would had the crisis of August onwards not happened. It has to be well paid for the risks. And there are risks. I remember that when I was a university teacher in New Zealand, there was something called the post-primary student bursary, which gave students who committed themselves to going into teaching a teacher’s wage to go through university. That was a marvellous institution that encouraged people to go to university. However, when the students left university, they disappeared; many went to teach in England to relieve the crisis in education at that time—this was the ’60s. People in raincoats from the education department used to knock on my door and ask whether I knew where student Fred Bloggs was. I knew that Fred Bloggs had gone overseas, but did I know his address? Where did his parents live? Such situations give rise to problems. Two years ago, I purchased a fantastic palace in Grimsby and ever since I have been plagued with telephone calls from the Student Loans Company asking about the whereabouts of a girl whose name I shall not give. She was in receipt of a student loan and, apparently, absconded. I did not know the woman. She had never lived at the house; at least, nothing on the records of previous owners indicated her name. However, she had taken out a student loan and disappeared. Considerable expenditure will be necessary to trace such people and the private sector will want to be well rewarded. We may be getting money off the public books, but we will have to pay the private sector substantially to handle it. In passing, I should like to put a query to the Minister. I see from the Directgov website that European students from both the European Union and the European economic area are eligible for student loans if they"““have been living within the EEA and Switzerland for the three years immediately before the start of the course””." The explanatory notes to the Bill discuss the recovery of"““student loans made to borrowers domiciled in England (and those studying in England but based overseas) at the time the loan was taken out.””" If there are problems, overseas students will be difficult to trace, assuming that they have gone back to their EU country; Turkish, Swiss and Norwegian students are also going to be eligible. All that will impose an extra cost. How will that be financed? When it takes over the loan book, will the private sector toughen up on all that and what kind of charges will it impose on the Government for providing the services to trace people? Finally, I come to my main point, which relates to anxieties to which I am sure the Minister will respond. There is the issue of the terms of the student loans. We sensibly geared the interest rate to the retail price index as we do not want massive interest charges. That gearing has reduced the interest payable on loans throughout the long period of low inflation under this Government; indeed, it has reduced it substantially on the interest rates payable in the early 1990s under the Conservatives. However, inflation has gone up, although not because of anything that students have done—it is all due to utility prices. The interest rate is now 4.8 per cent.—double last year’s 2.4 per cent. I have had calls from parents in Grimsby warning me about this and saying that it will have a disastrous effect on their daughter’s or son’s finances. Assuming that a student loan averages £15,000, they will be paying £720 a year, or £60 a month, in interest before they even begin to pay off any of the debt. That will be a monstrous burden for people starting out in life; they will start life’s race with a ball and chain on their foot. I hate to think of the prospect of a student who marries a student, with two student loans merged as a double burden on that household. This burden is completely unacceptable, and it is likely to get bigger. It will put people off taking out student loans and be a burden on those with loans who are starting out in life and might want to take out a mortgage, buy furniture or a car, or want to contract other debt. We have a debt-burdened society, and we are asking students to start out in it with a big debt already trailing behind them. It is not recoverable under the tribunals and enforcement legislation that we passed in the summer. That will become a political problem for my Government. The Minister said that it will be up to Government to vary the terms of student loans even after they have been privatised. I am glad to hear that, because they should wipe out the interest charges. I cite the precedent of the New Zealand Labour party, which promised in its 2005 election manifesto to write off interest on student loans, as it now has. The student gets a statement at the end of the year saying that a certain amount of interest is due, but it is written off and does not have to be paid. That was enormously effective and very necessary.