Is privatisation really the answer?

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November 25, 2013 by Nash Riggins

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The Student Loans Company has always been an enigmatic public burden – a costly but necessary evil that allows Britain to foster young talent and train the leaders of tomorrow. In turn, these government-funded loans go on to perpetuate a forward-thinking attitude that willingly takes on the risk of investing in people rather than a plethora of tangible, short-term cash cows.

Well, apparently the government has decided investing in people is no longer worth the risk.

This week, universities minister David Willetts sealed a deal that will sell off almost £1bn worth of student loans to private debt collection agency Erudio Student Loans. Things couldn’t have worked out any better for the “debt recovery specialists” who purchased the loans for under 20% face value. And while it’s upsetting enough that politicians are short-changing voters by under-selling public assets, it’s far more unsettling to know ministers are already forming plans to sell off the rest of Britain’s £40bn student loan book, too.

Now, shedding debt may sound like it’s good for business; however, it’s pretty damn foolish to trade in serious, moral-laden assets for a quick buck. It’s even worse for Britain’s already debt-laden graduates.

Face it: we’re living in a new, golden-age of privatisation. That’s not necessarily bad. The Royal Mail, for example, is an ever-evolving business that desperately requires cutting-edge research and an influx of capital in order to remain globally competitive. The government can’t provide those things, and so privatisation seems like a natural solution. But that’s not the case with mortgage-style student loans.

The way these loans work, students are given stipends during their studies – which they’re meant to repay in monthly instalments after they’ve eventually achieved an ever-shifting salary threshold (currently sitting at £28,775). In theory, it sounds like a pretty simple way of reacquiring public funds. Yet in practice, the poorly managed SLC has repeatedly proven incompetent at keeping tabs on the country’s ever-growing list of recent grads and organising their repayment schemes.

In turn, more than a few former students slip through the cracks, or are able to cheat the system indefinitely. Any first-year economics student could tell you that’s not a sustainable business model. But with a little total quality management and modest investment, the government is still best-placed to ensure British students are repaying their debts.

Above all else, that’s because the HMRC already possesses all the information required to chart a person’s salary and determine when it’s time to start deducting loan repayments from their wages. And while that may cost a bit in man hours, does it not still make more sense to build off of an existing public infrastructure than to utterly abandon the welfare of hundreds of thousands of British workers to a characteristically unscrupulous debt collection agency?

As much as George Osborne wants to balance his budget, he needs to take into consideration that sometimes privatisation is not the answer. Years ago, the government decided to offer easily-digestible student loans as a means of investing in its people – and now that times are tough, politicians are keen to cash in on that investment prematurely. Not only is that ethically dubious, but it’s bound to explode in the government’s face. After all, when recent grads are bullied into bankruptcy by their new debt overlords, we’re bound to see a steady drop in economic activity. Even in the darkest depths of Westminster, those tremors will be impossible to ignore.

So, make no mistake: something about Britain’s fragmented student loans system needs fixing. Too many debts are going unpaid, and changes need to be made. But those changes cannot simply be achieved by shameless politicking and near-sighted economic strategy. With any luck, MPs will take that into consideration before they agree to shed the country’s remaining £40bn in student loans.

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