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Sale of Student Loans Bill

I shall start with the last point first. The student loans payments are collected through HMRC alongside the process of the collection of tax. From time to time there are cases of overpayment, which the Student Loans Company investigates, and corrections are made. I reassure the noble Baroness on the role of parliamentary scrutiny and the regulations. The role of regulations in determining the repayment terms and conditions of student loans will continue, as will parliamentary scrutiny. That is the Bill’s intention. This group covers amendments about the form the sales transaction itself will take. As we have heard, Amendments Nos. 2 and 3 concern whether a loan purchaser will be able to change the terms and conditions of the loans. I fully agree with the intention behind the amendments. It is a central tenet in our policy in embarking on a programme of sales of student loans that the purchaser is not buying the rights to alter the terms and conditions of the loans. The Bill does not allow the sale contract to give the loan purchaser the power to alter terms and conditions set out in regulations. By virtue of Clause 4, terms and conditions for all loans will, as now, be governed by the regulations and scrutinised by Parliament. The loan document also contains a very few minor contractual arrangements, to which the noble Baroness, Lady Sharp, referred on Second Reading, which are not derived from the regulations. These residual terms, however, contain none directly concerned with the terms of repayment. As with any contract, it will not be open to the purchaser unilaterally to change the terms even in respect of these. That would be possible only with the agreement of each borrower. The protection envisaged by Amendments Nos. 2 and 3 is already in place. They simply restate something that is already the case in law. I am happy to give the Committee a clear assurance, as my honourable friend the Minister of State for Lifelong Learning, Further and Higher Education has done in another place, that purchasers will not have the right to alter a borrower’s terms and conditions and that regulations will continue to apply. Some minor amendments to the loan documents might be possible but could be made only with the agreement of each individual borrower. We do not expect that purchasers would wish to do this, or that there would be any benefit to them. On that basis I hope that the noble Baroness will withdraw her amendment. Amendment No. 4 would place a duty on the Secretary of State to contact borrowers whose loans had been sold. I welcome the opportunity to set out clearly our position on communication with borrowers about sales. The Bill makes provision for the sale of student loans without prior notice to the borrower. We believe that that is justified because the borrower will experience no adverse effect as a result of the loan being sold under the protections that we are putting in place. It is common practice for loans underlying a financial asset to be sold on without notice to borrowers. My honourable friend the Minister of State for Lifelong Learning, Further and Higher Education has given a commitment in another place that we would write to all borrowers whose loans had been sold to let them know. That is picking up the concerns raised by the noble Baronesses about expectations—perhaps fuelled by media coverage. The noble Baroness, Lady Sharp, proposed that this commitment be placed in the Bill, and I am happy to take the matter away and consider whether it is possible to bring something forward at Report. Amendment No. 5 seeks to include a specific restriction about organisations to which sales can be made. In embarking on a programme of loan sales, the Government are aiming to manage a growing public asset efficiently and to secure good value for money for the taxpayer. We believe that, in reality, the restriction proposed would work against these aims. We do not expect that any financial institution would want to own the loans itself, but that the loans would be sold to a legally separate special purpose company. It is not straightforward to see how the restriction might be applied. It is not clear, for example, whether the restriction is intended to apply only to the legal title of the loans, or whether it would also apply to bonds backed by the income from the loans. Nor is it clear from the amendment exactly how the target for this restriction would be defined, although I understand the noble Baroness’s concerns. A further difficulty is that the proposed restriction would apply to onward sales as much as to initial sales by virtue of Clause 3(2). Onward sales from the special purpose company are unlikely in practice. However, once the Government have sold an asset, they have transferred ownership and cannot exert substantial control over to whom the purchaser could then sell that asset. If this restriction on onward sales were included in a sales contract, then the independent Office for National Statistics would be likely to rule that the transaction did not constitute a true sale. The noble Baroness knows that that is a key prerequisite to achieving this programme of sales. That would mean that the loans would remain on the Government’s books, and would not make funds available for investment in other priorities. The amendment would therefore have the opposite effect to what I assume it aims to achieve; that is, to ensure good value for money and a transfer of risk away from the public sector. The Bill contains the necessary provisions to ensure that borrowers are fully protected no matter who owns the loans, and no matter whether it is an initial sale or an onward sale. We will cover that issue further when we reach amendments on Clause 3 on onward sales. I do not believe that this proposal is necessary. It applies to an extremely unlikely combination of circumstances, although I accept it is always helpful to look at all possible circumstances. Furthermore, my view is that it would not be possible to draft a provision with sufficient clarity to achieve its purpose without introducing issues of interpretation and possible impact on the marketability of bonds, particularly with regard to what I was saying about the classification of sales. We will consider further the question of contacting borrowers on the sale and I have explained why I hope that the noble Baroness will consider withdrawing her amendment.