THE SALE of Pounds 1 billion of student debt to NatWest bank will cost the government about Pounds 350 million in subsidies at present net values, higher education minister Tessa Blackstone told MPs last week.
This compares with an estimated cost of nearly Pounds 300 million it would have incurred had the loans remained publicly owned and the government continued to bear the risk.
Subsidies of about Pounds 60 million will be paid in the next financial year to Finance for Higher Education Limited, a company formed by NatWest Markets specially to aquire the student debt.
Further subsidies will be paid in future years, reducing over time as the debt is repaid.
They will help bridge the gap between the low rate of interest students pay on the debt and the interest that NatWest pays on a bond issue, planned for later in the year, to cover the purchase.
But part of this sum will be repaid to the government through administration charges to the Student Loans Company and tax receipts on private sector profits.
The total cost to the government of the loan sale next year is therefore estimated to be about Pounds 55 million, compared with the Pounds 40 million cost of keeping it in the public sector.
The government has also guaranteed to reimburse NatWest for any long-term defaults, up to just under 5 per cent of the loan portfolio, so long as the bank proves it has done its best to collect them.
The Student Loans Company will continue to administer the loans for at least the next five years, which means existing borrowers should notice little change. They have been guaranteed the right to defer payment if their income is below 85 per cent of average earnings and interest rates linked solely to inflation are to continue.
There will also be an independent assessor to deal with student complaints. A further sale of part of the remaining Pounds 2.5 billion debt is planned later this year.
It will not include loans now in arrears, which will continue to be held by the government.