---

Sale of Student Loans Bill

My Lords, we are referring to a interesting and hotly debated subject of equal or equivalent degrees. The Government are committed to increasing the spending on the support for people taking first degrees. We believe there is an enormous pool of students who have not been to university who should benefit from a priority in government spending. We will have the opportunity to discuss this further. The noble Baroness is smiling and nodding so, with that, I will move on. I stress that we have set challenging targets for the higher education system over the spending review period and have made a commitment of resources to make those targets achievable. By the 2010-11 period, the real terms increase in public expenditure for higher education since 1997-98 will have exceeded 30 per cent. In establishing the Department for Innovation, Universities and Skills last year, the Prime Minister made clear the importance he attaches to this country developing world-class skills and research bases to help create new products and markets and drive enterprise and efficiency. Commitment to higher education is a key factor and is at the heart of this drive from the Prime Minister. I hope I can assure my noble friend that I and my ministerial colleagues will, as ever, do our utmost to ensure a good and fair outcome from future spending reviews for higher education. However, we do not have a legitimate claim to hypothecate the proceeds from the student loan programme. I am sure my noble friend will not be surprised to hear me say that. To hypothecate those proceeds is not consistent with the way in which the Government manage public spending, nor is it consistent with the way in which repayments from student loans borrowers currently feed back into the public finances. The ongoing revenue that government receive as graduates repay their student loans goes not to the DIUS budget, but to the Consolidated Fund, as has always been the case. The use of that revenue forms part of overall government decisions on spending across all priorities. However, I reiterate the commitment that my department has made to continuing to promote higher education and to making a case for further spending. My noble friend Lady Warwick and the noble Baroness, Lady Verma, pressed me on the timing of the sale. The Bill enables a long-term programme of student loan sales, so we need to think about the market conditions over the long run. However, if a continuation of the current market turbulence translated into poor value for money in any sale of student loans, we would not go ahead with the sale at that time. My noble friend asked whether sales will be possible in the financial year 2008-09. We have been advised that they will. Financial markets have suffered significant disruption since the middle of last year and high levels of volatility and uncertainty remain, but there has been some improvement since December. No one can accurately predict the market conditions at a given time, which will naturally vary for different sales. We will closely monitor the market with a view to launching sales at a time when conditions are more stable to help ensure the good value for money that the taxpayer must demand. The noble Baronesses, Lady Verma and Lady Sharp, pressed the question of value for money and asked how the assessment might be made. I said in my opening speech that it is essential that we compare bids for selling the loans with the value of holding them. Part of the value-for-money assessment will involve gathering full and clear market information alongside assessing the value of keeping the loans on the public balance sheet. Assessing those values requires a number of projections, as the noble Baronesses will understand, estimating the level of repayments that will be made by borrowers far into the future. We will estimate the rate at which graduates will repay and how many loans will be written off because the borrower has become permanently disabled, for example, or passes away. As these projections have to be based on assumptions and estimates, a degree of risk is built into them. In assessing value for money, we will also take into account the value of transferring that risk from the public sector to the entity which buys the loans. That does not lend itself to a precise equation, so the assessment will need to consider a range of values based on different assumptions and estimated risks. The noble Baroness, Lady Sharp, raised concerns about the overindebtedness of young people. Student loans should not be confused with commercial debt. I appreciate her concern, but student loans are nothing like credit card debt. For example, as the noble Baroness stressed, monthly repayments are made through the tax system and depend on how much the borrower is earning and not on how much they owe. Grants are available for students from low-income and middle-income backgrounds and are being extended to reach two-thirds of students in 2008. The noble Baroness, Lady Verma, asked about the review of the student finance system. That review will take place in 2009 and its terms of reference have been made public, but there must be time for experience of the current system to be built in and amassed so a proper evaluation can be made. We are also introducing the new concept of a loan repayment holiday for five years, which could be very important for some students who wish to take time off to have children, and so on. However, we should remember that over a lifetime a graduate earns £100,000 more than a person with two A-levels. That brings with it significant benefits, which I can summarise as the underlying principle behind student loans. Noble Lords raised questions about EU students. That is an interesting point that we shall be happy to return to in Committee. Clause 1 enables the Government to sell student loans, which are due to be repaid to the Secretary of State, as well as maintenance and fee loans made to people domiciled in England when they take out their loan. That includes fee loans to which EU students are entitled, as the noble Baronesses, Lady Sharp and Lady Verma, reminded us. Entitlement to fee loans for EU students was introduced only in 2006, so there are unlikely to be significant numbers entering repayment until 2010 and beyond. But this Bill is designed to enable a long-term programme of loans and there is no reason why those loans should not be considered for sale in future. There are questions of detail around how the Student Loans Company will work, which I shall be happy to go into in Committee—and I shall be happy to ensure that the noble Baroness, Lady Verma, has as much information as she needs to think about those questions, I hope in advance of Committee. The noble Baroness, Lady Sharp, and others asked about data. The Bill allows sharing of HMRC data only to the extent that it is necessary for potential purchasers fully to understand and value the assets that they are considering buying and to allow sold student loans to be administered effectively. Potential purchasers can receive only anonymised information. As we plan to require purchasers of the loans to use the Student Loans Company to administer and enforce the sold loans, loan account data would not need to be transferred to the purchasers for day-to-day purposes. In the event that purchasers require access to data—for example, for audit purposes—the method and transfer will be secure and encrypted, after the lessons learnt from mistakes made to which noble Lords referred. Purchasers will not be able to access any wider range of personal data and will not be able to use personal data for any purpose other than administering student loans. The Bill extends a criminal sanction on unlawful disclosure of HMRC data, to protect information on student loan borrowers. That is a strong measure. All data-sharing will be in accordance with existing data protection legislation, including the Data Protection Act. Onward sales have been an issue in another place and noble Lords have raised it again today. Once the loans are sold and securitised, we expect it to be a rare occurrence that the loans will be sold on. A special purpose company will be created to own the loans and receive the income from them; owning the loans will be one of its few purposes. The main market relating to sold student loans will be in the financial instruments—the bonds issued by the owner of the loans. The borrowers’ primary protection will be that terms and conditions of loans cannot be altered by the loan purchaser. That will apply equally to any subsequent purchaser as to the initial purchaser. That is on the question about the interest rates that the noble Baroness, Lady Verma, raised. In so far as the contract for loan sale also incorporates protection of the borrower—for example, in insisting on the same mediation arrangements as are in place for unsold loans—we shall ensure that the protection continues in the unlikely event of subsequent sales. Clause 3 provides for ways for the Government to ensure that contractual arrangements for onward sales support that policy. That important part of the Bill was discussed at length in another place. I am happy to put on the record that we will ensure that any onward sales contract continues to protect the borrowers fully. The noble Baroness, Lady Sharp, asked about transferring risk. For loans that are sold, the purchaser will assume all the risks relating to repayment. Our intention is to sell all the loans for which there is sufficient information for the market to price them effectively. Obviously, it is in our interests in this sale to have different types of risk bundled up together in a range of bonds that will be attractive to potential purchasers. As the income contingent system matures, more and more loans will be saleable by that approach. The noble Baroness will be aware that the report to Parliament that my noble friend will make in another place will allow public scrutiny of the sales as they go forward. Finally, because I will run out of time, the noble Baroness, Lady Verma, asked about the constraints of data. I picked up on that already but I am happy to return to that and other questions in Committee. I close by thanking all noble Lords who have contributed to this debate. The Bill is rather technical. I want to ensure that we have explained our approach as fully as possible to noble Lords. I shall be placing a short briefing document in the Library and there will be an open briefing tomorrow evening for Peers at 6.30 pm in Room 3—a little advert there. The expert scrutiny provided by your Lordships' House is invaluable and will help to ensure that this legislation sets appropriate foundations for a flexible ongoing programme while providing appropriate protection for borrowers and for the public purse. In that spirit, I look forward to discussing the Bill fully in Committee and I commend the Bill to the House. On Question, Bill read a second time, and committed to a Grand Committee.