Is your student loan being sold? The answers we must get from the Government…

23 March 2017

Dear Lord Hollick,

I write regarding the Lords’ Economic Affairs Committee’s forthcoming meeting with the Universities Minister, Jo Johnson, on the sale of the student loan book. I wanted to explain a number of issues of concern which I believe are important to raise with the minister to give current, past and future students confidence in the Government’s procedures.

Lessons to be learnt from the sale of pre-1998 student loans to Erudio

Erudio bought these ‘mortgage-style’ loans in November 2013. At the time we questioned whether anything would change, and were told there would be no change to the loan terms and conditions.

While true, this turned out to be only a very narrow assurance. The terms didn’t change, but the operational practice of the loans did. My team and I at MoneySavingExpert.com had significant amounts of correspondence from outstanding holders of those loans about the level of distress and worry it caused.[1] These problems included:

• Changes to forms. The new forms were far more intrusive than before, with many more questions. Loan holders worried about the increased level of their personal data the loan firm was requesting.
• Loans were no longer administered by the Student Loans Company, but by Erudio and people found it difficult to deal with.
• For the first time the loans were reported on credit files. Before the loan sale, the rule had always been (apart from for pre-1998 loans in default) that student loans would not appear on credit files. This was a substantial, uncommunicated change, and left many worried about the impact on their creditworthiness.
• Some ‘loan deferment forms’ were sent out by Erudio without a title, so loan holders had no idea why they were being asked to fill them in.

Applications for loan deferment for those earning under the income threshold were wrongly processed, meaning some were asked to pay who shouldn’t have been. The loans in the new tranche being sold, though, do not have a deferment threshold as they are income contingent and paid via the payroll, so this is less of an issue.

As these evidence, it is important that the minister gives a cast-iron guarantee that there will be no negative changes to terms and conditions, operational practices, credit information and point of contact.
In addition it would be useful to gain clarity and assurance from the minister on a few other issues.

• Who will be responsible for the collection of self-employed graduates’ loans – where student loan repayments aren’t taken via the payroll. Will there be any changes?
• Even before this change, many university leavers face issues when they have fully repaid their loan, yet payments still continue to be taken. When their loans have been sold to investors, what will the mechanism be for corrections?
• If anything goes wrong with the administration of their loans following the sale, what will the complaint mechanism be? How will university leavers be able to appeal issues?

Will the sale bias the Government to retrospectively increase loan costs?

In April the Government will freeze the repayment threshold for those who started university in and after 2012. This U-turn was announced in November 2015; before that it had promised students the repayment threshold would increase in line with average earnings.

The net effect of this is a retrospective hike in costs for all university leavers whose income is above the threshold, who have started university since 2012. This is something I have long campaigned against.

The Chancellor was questioned about this at the Treasury Committee on 12 December 2016. In the meeting, Wes Streeting MP asked about the “retroactive changes to student loan repayment conditions, in particular freezing the threshold at which graduates would begin to repay from next year…”. The Chancellor replied:

“I would have to be frank with you and say I do not see scope for reversing that decision. It is an important part of our overall fiscal consolidation and, of course, it is also about preparing the student loan book, ultimately, for sale as an asset sale [emphasis added].”

Previously we’d been told that there were no plans to sell post-2012 student loans. It would be good to get clarification from the minister to see if that policy has been reversed. Does the Government consider the rights of investors to have confidence in what their rate is to be more important than the rights of student to have confidence in what they will repay?

Furthermore, what guarantee do we have now the Government has effectively retrospectively hiked student charges that it won’t do it again – for this tranche and others – to make these loans more attractive to investors?

I hope this letter provides useful information for your meeting with the minister.

Yours sincerely,

Martin Lewis

Founder and Executive Chairman, MoneySavingExpert.com
Former Head of the Independent Taskforce on Student Finance Information

[1] MSE News coverage on Erudio can be found at http://www.moneysavingexpert.com/news/tag/Erudio. In addition, the MoneySavingExpert Forum thread “Erudio student loans help” has over 500,000 views and 6,000 replies from graduates discussing the range of problems they have experienced with the company: http://forums.moneysavingexpert.com/showthread.php?t=4923210.