Ministers on Monday confirmed a deal to sell off £890m worth of mortgage-style student loans, part of a wider drive to raise money from the liquidation of public assets.
The £160m deal with Erudio Student Loans covers outstanding student loans owed by about 250,000 borrowers. It relates to the remaining 17 per cent of mortgage-style loans taken out by students who began courses between 1990 and 1998.
David Willetts, universities and science minister, said in a statement: “The sale of the remaining mortgage-style student loan book represents good value for money, helping to reduce public sector net debt by £160m. The private sector is well placed to maximise returns from the book which has a deteriorating value.”
Erudio is backed by a consortium led by consumer debt management groups CarVal Investors and Arrow Global.
The sale – which comes weeks after the flotation of Royal Mail – relates only to a select group of students who took out the loans between 1990 and 1998. Unlike more recent loans based on an income-contingent repayment system, these mortgage-style debts are repaid over a fixed term.
The idea of selling this tranche of the loan book was first mooted by Mr Willetts in March. He said the move would allow the government to “reduce public debt” and maximise the value of its assets.
“The private sector’s expertise makes it well-placed to collect this debt and the sale will also help the Student Loans Company to concentrate on providing loans to current students,” said Mr Willetts.
However, ministers are also said to be mulling whether to sell off the entire £40bn loan book ahead of a projected rise in the loan backlog to 6.7 per cent of gross domestic product by 2033.
Separately, a report by the professional services group PwC has revealed that a big increase in the debts students accrue to fund their tuition fees has driven up unsecured borrowing in the UK by 4 per cent to £216bn – the first rise for five years.
The research found that almost all of this year’s £8.5bn increase in unsecured debt could be attributed to a rise in student borrowing. Excluding student debt, underlying consumer borrowing was flat in 2013 at about £5,900 per household, having dropped by 25 per cent since the start of the financial crisis in 2007-8.
The rising debt levels of students, who are expected to graduate with debts averaging £40,000 to £50,000, were likely to have profound effects on future borrowing and consumption patterns, the report said.
UK consumers remain among the most indebted in the world, surpassed only by those in the US and Canada.
Traditional forms of lending, which include credit cards, personal loans and overdrafts, fell by about 1 per cent in 2013. In contrast, newer forms of borrowing, such as payday loans and peer-to-peer lending, rose by about 14 per cent, but still represent only about 1 per cent of overall consumer borrowing.
A survey of consumer confidence found little improvement in sentiment despite the better economic outlook, with more than a quarter of respondents worried about their ability to meet repayments.
Consumers remain vulnerable to rate rises, according to PwC, which said a 1 per cent increase in borrowing costs would result in the average household needing to pay an extra £550 a year in interest payments to service their debts.