Student Loans: Ministers To Unveil £900m Sale

Nearly £1bn of student loans will be offloaded by the Government to a private debt collection agency today in a move likely to stoke renewed controversy over coalition sell-offs.

Sky News can reveal that ministers will announce to the London Stock Exchange that the Government has agreed a deal to privatise a £900m portfolio of loans made to students who were enrolled at universities during the 1990s.

The disposal, to a debt recovery specialist, will be for a fraction of the debts' face value, and encompasses mortgage-style loans that are the last of their kind still in public ownership.

The sale, which does not include Income Contingent Repayment loans like the ones currently offered, comes as student groups step up their protest over the disposal of the loan portfolios.

The coalition is drawing up plans to sell the entire outstanding student loan-book, which has a face value of roughly £40bn.

Investment bankers from Barclays and Rothschild were appointed by the Department for Business, Innovation and Skills (BIS) last month to oversee the sale, which more than 15,000 people have signed an online petition to oppose.

Danny Alexander, the chief secretary to the Treasury, said during the summer that the Government hoped to raise £10bn from the sale of corporate and financial assets such as the student loan book by 2020.

Speaking in March, when the mortgage-style student loan auction was initiated, David Willetts, the universities and science minister, said: "Selling the remaining mortgage-style student loans will allow us to reduce public debt and maximise the value of one of the Government's assets.

"The private sector's expertise makes it well-placed to collect this debt and the sale will also help the Student Loans Company (SLC) to concentrate on providing loans to current students."

The low recovery rate on the 1990s loans means the sale price is likely to be only in the tens of millions of pounds, reflecting the distressed nature of the debts, people close to the situation said on Sunday.

The deal will come at a sensitive time, just weeks after Royal Mail was floated with a valuation of £3.3bn.

On Wednesday, Royal Mail will present its maiden results as a listed company, while Vince Cable, the Business Secretary, will make a further appearance before the BIS Select Committee amid allegations that the postal operator was sold too cheaply.

The Government insisted that bidders for the £900m loan portfolio, which was given the codename Project Ariel, would be assessed against a strict set of criteria, although it did not say publicly what these would be.

It added that the terms and conditions for borrowers whose loans were included in the sale would not change.

The mortgage-style loans were available between 1990 and 1998, with two tranches sold in 1998 and 1999. Repayments on them can be deferred for a year at a time if borrowers' income is below 85% of the national average earnings.

"The remaining loans owned by the Government are mostly in deferment or in arrears, so total annual repayments are low," BIS said in March, adding that it was likely to receive significantly less than £900m from a buyer.

A BIS spokeswoman declined to comment while the Student Loans Company referred questions to the Government.

PricewaterhouseCoopers, which has been handling the auction, also declined to comment.