The Government has sold off student loans totalling almost £900m to a private debt collection agency for £160m amid warnings of an impact on every taxpayer.
The sale, revealed over the weekend by Sky's City Editor Mark Kleinman, covers loans taken out by 250,000 students who began courses between 1990 and 1998 amid intensifying efforts in Government to raise money for the public purse from the student loan book.
The National Union of Students (NUS) was quick to criticise the sale, telling Sky News it amounted to "the public subsidising a private company making a profit from public debt."
The Department for Business Innovation & Skills (BIS) said Erudio Student Loans was selected as the successful bidder through a "competitive process".
It said its offer was judged to represent the best value for money for the taxpayer and the price paid exceeded the estimated value to the Government of retaining the loans, which have a poor return rate.
Of the 250,000 loans sold, around 46% are earning below the repayment threshold, 14% of borrowers are still repaying and 40% are not repaying their loans in accordance with their terms.
BIS argued the private sector was thought best placed to collect the outstanding debt as it allowed the Student Loans Company (SLC) to concentrate on administering newer loans.
Universities Minister David Willetts said: "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.
"The sale will allow the Student Loans Company to focus on supplying loans to current students and collecting repayments on newer loans.
"Borrowers will remain protected and there will be no change to their terms and conditions, including the calculation of interest rates for loans."
The mortgage-style loans at the centre of the sale were the last of their kind on the Government's books.
Under the terms, borrowers are required to repay in fixed monthly instalments over a set period of five or seven years with interest charged at a rate equivalent to the Retail Prices Index (RPI).
But repayments can be deferred for a year at a time if a borrower's income is below a threshold of 85% of national average earnings - currently £28,775.
The coalition is drawing up plans to sell the entire outstanding student loan-book, which has a face value of roughly £40bn.
But such a move was criticised by the National Union of Students in the wake of today's sell-off.
Its president, Toni Pearce, said: "This announcement is extremely concerning and is one that will see the public subsidising a private company making a profit from public debt, which is incredibly problematic.
"The impact of this sale won't only affect borrowers, but will affect everybody.
"The simple fact is that having these loans on the public books would be better off for the Government in the long run. Selling off the loan book at a discount to secure a cash lump sum now doesn't make economic sense.
"The current student loans system is completely unsustainable. Forcing debt onto students as a way of funding universities is an experiment that has proven not to work and there needs to be some serious thought about moving the system away from this ridiculous model."
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