The UK government is about to make its largest ever sale of student loans to private investors. The reported intention is to sell the student loan book in order to cut the national debt. Around £4 billion of loans made to about 450,000 students who started making repayments between 2002 and 2006 make up the package. This is not, of course, the first such sale, but each is a sickening moment.
The first, and most glaring reason for this is that each such sale turns education into debt slavery. This process reduces large numbers of people from younger generations into another commodity for the financial sector to trade. Each sale further alienates them from a society that should instead want to transfer to them the skills they need so that they can flourish.
As a result, the message is sent to succeeding generations that of course they may go to university, but at the cost of a mortgage on their incomes. And mortgage is the right term: its literal meaning is “death pledge” but it has also been interpreted as meaning the “grip of death”, always hanging over the mortgagee until expunged.
And transferring the debt in question to the private sector makes clear just what it represents. It is not now a debt located within society, which might be true if it was always with a state institution, but is instead purely contractual. It has been reduced to the “pay or else” threat which already hangs over so many households in the debt-laden UK; another obligation that oppresses when education should liberate.
The plan doesn’t even make any sense. It is economically illogical. After all, the debt is at present an asset in the hands of the government. And what is more, it is an asset that is earning more in interest than the government is paying to its own creditors, which in real terms is close to zero right now.
So if we must have a surplus earned on student debt, then at least it should actually contribute to the exchequer and the supposed cost of paying the interest “burden” that the nation supposedly suffers under. Sell this student debt, and the margin earned goes to someone else. And the more debt that is sold, the more that is the case.
Because of the inherent uncertainties in future loan repayments, buyers have to be incentivised to take the debt off the government’s hands. So it is undervalued for the sale, which means the government necessarily records a loss on the deal in real cash terms – both from the undervaluation and from not getting the margin on the interest earned. The more that is sold, the bigger the loss. That, politely, makes no sense when there is no pressure to sell (as is true right now) unless the dogma of deficit reduction is overruling economic common sense.
Banking on it
Crucially, there was a better way to handle this, if the government is determined to get the debt off the books. As it stands, the policy looks fiscally absurd. Remember the government is still subject to a debt repurchase programme by the Bank of England thanks to a quantitative easing programme which is still in progress. At the same time, however, it is selling student debt, wholly unnecessarily. In fact, the government could simply sell its student debt book to the BoE under the QE programme and have that debt effectively cancelled instead of making this sale to the private sector.
It is important to note that this does not cost anything: all the money used in the QE programme is money the Bank of England electronically prints out of thin air for the purpose: none of it impacts on taxpayers or government spending limits at all.
The consequences of that would be staggering. I suspect nothing would liberate entrepreneurialism, the ability to buy a house, the chance to save for a pension and boost growth more than following this strategy right now. But instead, the dogma of financialisation rules.
Investment in futures
Which brings me to my last concern. It has always been argued that we must have student debt because the state cannot afford to fund student studies. But the debt now being sold is in effect for students who left university up to 15 years ago, much of whose study has been funded by the state. It provided the loans to the students involved and only now will it see any significant part of many of them being repaid.
The failed logic is clear. In practice, the state has indeed funded the education of those whose debt is now being sold for 15 years, or more. Now it will sell the debt at a loss when there is no financial imperative to do so. The state is not then being refunded for the cost of these people’s education, instead, the government is creating a new private sector debt burden that will amount to a sum greater than government debt is reduced by. The student loan borrowers – unlike the buyers – will enjoy no discount on this sale. It is as if we were re-running the build up to another debt-fuelled financial crisis.
This sale makes not a jot of difference to the UK government’s finances; it may reduce UK government borrowing by less than 0.2% of the total sum outstanding, or about the sum borrowed every three weeks. What it does do is sell debtors to the financial sector so that they might begin their lifetime of economic enslavement. It will keep students in hock for longer than necessary, and at a cost to their long-term life prospects. You could not have an economic policy more depraved than that.