The FT reports this morning that:
The UK has fired the starting gun on its largest ever sale of student loans to private investors, in an effort to divest public assets and cut the national debt. The deals, announced on Monday, will involve £4bn of loans made to about 450,000 students, which first entered repayment between 2002 and 2006. The price is expected to be lower than face value, since not all the debt will be repaid in full.
This is not, of course, the first such sale, but each sickens me. Each turns education into debt slavery. Each reduces large numbers of young-ish people into just another commodity for the financial sector to trade. Each alienates them further from a society that should want to transfer the skills they need to them so that they can flourish.
And each shows how wrong the priorities of government are. Remember the government is still subject to a debt repurchase programme by the Bank of England right now. And at the same time it is selling student debt, wholly unnecessarily. Indeed it could simply sell it to the Bank of England and have it effectively cancelled instead of making this sale to the private sector right now. Nothing would liberate entrepreneurialism, the ability to buy a house, the chance to save for a pension and even boost growth more than doing so, I suspect. But instead the dogma of financialisation rules.
I despair.
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Am I right in thinking that the financial instrument that is presented for sale will be the equivalent of a (toxic)CDO. Thousands of individual debt contracts having been packed together and sliced and diced to form unitised investment packages?
You are right
Question and answer shared on Facebook.
Nice point: securitisation – “the Empire Stricks Back” – sort of. I wonder what sort of conversations went on behind closed doors between gov’ & financiers? Obviously they just want to “work the angles” – student debt is one of these. The puzzle is why the gov’ as Richard noted did not simply cancell it? Ideology? or, given that student debt probably does not impact the Tory ruling classes or their off-spring, perhaps they just don’t care?
I tell my children to think carefully about going http://www.independent.co.uk/student/student-life/finances/average-graduate-will-still-owe-almost-60000-tuition-fees-after-30-years-of-repayments-student-loan-a7539516.html
Student debt in the USA is now bankrupting retirees they’ve had it so long.
My son has his applications in for university for next autumn.
I don’t want him wasting resources of his parents and the state (possibly taking a seat from someone else), as well as his own time if he is half-hearted. I think if tuition were free (ie he doesn’t have any skin in the game), it would distort that decision. May not be true for everyone, but definitely true for him.
The fact my son may have to pay some of it (deferred when he starts earning, on pretty generous terms) is now focusing the mind on his decision.
The system is working for at least one youngster (and looking at his mates, he is not alone).
So why do you say this at 18.
And not 16?
Or 14?
There is no sense to your logic
At age 14 he was required to go to school. As a society we do say that school is a good idea for everyone at that age.
But we don’t say the same for university education after age 18. It is neither compulsory nor necessarily a good idea for everyone.
At 18, he now faces a range of choices about his education, university being just one of them. I prefer for him to make the decision carefully – having some skin in the game helps this. Having no skin in the game distorts the decision.
You ducked 16
Why?
That was a choice too
The issue is whether at 16 a person is mature enough to make that decision.
I don’t have a strong opinion, other than to say many 16 year olds I’ve known over the years (including my contemporaries) have been mature enough to make a decision of this kind over the years. Staying on for A levels isn’t for everyone, and I am sure we know plenty for whom it was a monumental waste of time and resources.
And if the 16 year old was required to pay for this once he or she starts earning over a certain level, it might stop him or her staying on for the sake of it.
Your faith in markets is touching
And wholly misplaced
What has faith in markets got to do with anything?
It is about people making choices when they are old enough so they aren’t forced down a narrow path that doesn’t suit them. That includes the path of A levels and University.
Otherwise, they are wasting their time and others’ resources. Surely you are not in favour of that!
I really do not think massive debt – which is way beyond their comprehension – has that result
My point is that the possibility of the debt (ie skin in the game) forces the marginal candidate to think a bit harder about the decision.
If it dissuades the half hearted then that’s probably a good thing – for the individual, parents and the universities.
If the individual has no skin in the game, it is a distortion across their range of decisions.
So messing up everyone with a lifetime of debt is the price worth paying for a few who can’t make up their minds?
Utterly bizarre
It isn’t just the decision on whether or not to go. It is the decision on which university and which course.
The price signals incentivise them doing their homework. I know plenty of young graduates (neighbours, relatives etc.) who have done a degree and are now waiting on tables several years out.
It seems like a bit of a waste – for the university, their parents and the young person (opportunity cost of their time).
If they had the issue of the debt hanging over them (and the ones I am thinking of were pre-fees), they may have put more care into their decisions.
Do you have any idea of the real purpose of education as opposed to technical learning?
Yes, I do. Universities are not the sole providers of learning, and are not suitable for everyone, whether due to capability or desire.
And indeed, when you say learning, learning what? Nobody goes to university to learn everything. Medical students learn zero about literature. Economics students don’t end up knowing much about zoology.
People go to university to learn a little bit about a little bit. And they don’t walk out as an expert on anything.
I assume we will have to agree to disagree, and I thank you for letting me have my say.
You are right
What you clearly do not know is that learning a little about a little is learning a lot about a process of thinking
That’s what I teach
If you live in England you are obliged to be in some form of education until 18.
Sure, HE is a process of thinking, but the point you are missing is that HE is not suitable for everyone. There are many degree courses outside the Russell Group which require A levels at grade C or lower. By telling these people that they should go to university we are cruelly building their hopes up when we know they could and should be benefitting from vocational courses, which have by and large been scrapped since the expansion of HE.
So you think it’s good that the children of the wealthy will be able to access higher education without concern (parents able to support them) whereas the children of the poor will be denied? An aristocracy of wealth!
And these decisions are being made by wealthy people who had access to free higher education, don’t forget!
I fail to see how anyone could consider this good or fair!
No, you are wrong – Richard doesn’t understand the difference between a CDO and a securitisation, or how the regulatory rules have changed since the crisis. That is understandable – this is a complex, highly technical area. But Richard has a strange unwillingness to accept there is any form of expertise other than his own.
Go on then
Spell out why my analysis is wrong
Not the detail – the analysis
Ciaran, pot, kettle, black?
Agree entirely. Although I’m opposed to them myself, it’s possible to make an argument for tuition fees, provided the whole loan apparatus remains within the public (specifically non-profit) domain. Selling student debt into the private sector for use as a financial instrument fundamentally changes the relationships between the student, the institution and the state, diminishing value for all but the financier.
Also, if the loan book is not to be sold at face value, then who will set the price? And on what basis? Presumably, no one will purchase unless there’s an opportunity to profit from it. In which case, what’s really happening is that the Government is simply gifting money to private institutions — which has about it the unpleasant whiff of corruption.
Agree with all that
As a graduate paying back my student loan I am trying to see a positive side to this – though I believe that I am in fact clutching at straws.
Investors will only purchase the debt if they can make a return on it, most likely pension funds I imagine who desire steady and reliable investments. On the assumption (and it’s a big assumption) that the terms of the loans do not change i.e. that they are written off after a period of time and that the repayment continues to be fixed as a % of income, then it is in the interests of these investors to help drive an economy where graduate pay increases so that we earn more than enough to repay our debt.
In all likelihood the loan and repayment terms are likely to start changing in favour of the investor rather than the student, although as these are existing loans being sold (first step maybe?) then the ability to alter the repayment terms is somewhat limited.
At which point future students are likely to start questioning the value of a degree.
I’m ashamed by what we’ve done to education in this country and if we think the US model worth emulating then those making that decision are scum.
There is much talk about Government investment in infrastructure, the best investment that a Government can make is in Education, the country reaps the reward of education many times over.
The abolition of “free at the point of delivery” and the imposition of the current loan based system is a retrograde step and will, I believe in history be shown to be a significant factor in the long term decline of the British economy.
As I have commented elsewhere what the government should be doing is cancelling these debts not selling them to financial spivs . But then you look at the present Chancellor, Hammond and you see a died-in-the-wool clueless, neoliberal who evidently has no idea how money is created in the first place. So what hope is there.
I have just submitted an article saying that for publication
If a Student Loan is being sold, presumably at a discount, then the person who owes that debt should be offered the opportunity to “buy” it themselves at the same discount.
It doesn’t happen