Tuesday, 17 December 2013

Government’s plan to finance extra student places by selling future student loans looks like a Ponzi scheme

The Higher Education Policy Institute (Hepi) have released a report which questions the government’s plan to finance the expansion of student places (announced in the Autumn Statement) with sales first of the pre-2012 student loan book, and then post-2012 loans.

John Morgan reports for Times Higher Education:

The plan “has many of the characteristics of a Ponzi scheme, relying on diminishing future income to make good increasing present deficits”, Hepi says.

Martin Wolf best articulated the fundamental folly of the planned sell-off back in May:

No private party has a lower borrowing cost than the government, since the government is the most creditworthy entity in the country. So the value of the student loan book to the government, given its low discount rate, is higher than to any potential private buyer.

Wolf concluded that the student loan book was best left in government hands.

How will the government justify their plans to sell? Hopefully we’ll find out when David Willetts gives evidence to the BIS Select Committee in January.