Image courtesy Policy Exchange, cropped. License: http://creativecommons.org/licenses/by/2.0/deed.en_GB

The Universities Minister David Willetts yesterday confirmed there was no “direct connection” between the plans to expand student places and the Government’s intention to sell off student debts.

Appearing before the House of Commons Business, Innovation and Skills (BIS) Select Committee, Mr Willetts said the sell-off would act as “cash flow assistance”, and chimed with the Coalition’s plan to reduce the net debt. He noted that “if you can hold down Public Sector Net Debt, it makes it easier to have policies such as more students”.

Funding the cost of expansion through the sell-off of loans, such as the ‘new style’ income-contingent student loans, has been likened in some quarters to a ‘Ponzi’ scheme. Both policies were mentioned in the Chancellor’s Autumn Statement, which seemed to offset the costs of expansion of student places with the money generated by selling of parts of the post-1997 student loan book.

Despite claims of errors in the calculations which unbalance the two policies, one of the Minister’s advisers confirmed at the Committee that there are assurances from the Treasury to underwrite the expansion of places and that there was “no logical linkage” between the two policies, despite it being “convenient” to talk about them together. This leaves the opportunity for the Government to review the value for money of any sale to the taxpayer, and to only proceed should this condition be met.

In response to concerns that the terms and conditions of the loans could be varied, such as interest rates and repayment durations, Mr Willetts suggested that the best thing his “friends in the NUS who worry that there is some plot here to change the terms of the loans…should look for is the sale of any loans”, as the conditions would most likely be locked in to that contract. He stated that the ability to vary any terms has always been included in the loan agreements, and that this power rests with Government.

In a hearing covering wide-ranging issues, the increase of the so-called Government subsidy (or ‘RAB charge’) of the post-2012 student loan system was questioned. Back in 2010 at time of the debates on the new fees system, the Minister expected a non-payment rate of 28%, however critics subsequently warned that this could be as much as 38% of the overall value of the loans. BIS’ own estimates now put the figure at approximately 40%, but this is blamed on the condition of the wider economy. “It is possible that [critics have] been right for the wrong reasons” stated Mr Willetts.