A law graduate's perspective on Project Hero/Project Zero.

Attention: Graduates have you taken out a student loan ?

Have you been provided with a government funded student loan? If so, you would be forgiven for thinking that the terms of that loan are fixed and settled. You could be wrong. The Guardian newspaper last week exposed the fact that the Government is considering the sale of its student loan book, which is worth an estimated £40 billion. In line with their ideological stance that anything and everything can and should be privatised, the government tasked Rothschild with conducting a secret study into how to ‘monetise’ the student loan book by selling a quarter of those loans to private companies. Under the Sale of Student Loans Act 2008, such a sale can go ahead without a consultation and without a parliamentary debate or vote.

Well what’s so bad about that, you might ask? The problem the Government has is that the student loan book is not a very attractive purchase for a commercial entity. This is because the interest rate which we pay on our loans is capped, and also because if a borrower does not earn in excess of £21,000, they will not be required to pay the loan back. So how will the Government get round this problem? Well there are three potential options. The first is to require the Treasury to make up the difference between the current interest rates and an acceptable yield through a ‘synthetic hedge’: but this would be false economy and put an unacceptable burden on the taxpayer. The other option would be to lower the loan repayment threshold, but depending on how significantly it is lowered, it is unlikely this will be enough to make the loan book commercially desirable.

The third option - and the one which appears to be the option most favoured by Rothschild - is to remove the interest rate cap on our loans, thereby making the loan book a more attractive asset to potential buyers... and adding years on to our repayment plans in the process. The current rate of interest paid is calculated at the base rate set by the Bank of England (which is presently 0.5%) plus 1%, or the RPI (retail price index), whichever is lowest. Should that interest cap be removed, you will find it much more difficult to pay off your loan. An article in the Guardian stated that a person earning £25,000 a year, with £25,000 of undergraduate loans taken out before 2012, could work until retirement without ever paying off the debt if the interest rate cap is removed.

How can the Government retrospectively amend the terms of a loan taken out years ago, one might ask? Because of some small print on your student loan letter (go and check) in which the Government cleverly reserves the right to change the terms!

The Rothschild report recommends that ministers use the following script to persuade us lot of gullible students and graduates to put up and shut up: “We all live in difficult times. You have a deal which is so much better than your younger siblings (they will incur up to £9,000 tuition fees and up to RPI+3% interest rates)”. Which effectively amounts to: ‘You’ve got it bad, but they’re got it worse, so stop moaning’. The idiocy of this approach can be demonstrated by a simple analogy: you buy a £50 coat from a shop on a payment plan. 10 years later, the owner of the shop demands you pay £50 extra for the coat, which you haven’t worn for years, and their defence is ‘well that’s how much the coat costs now so you can’t complain!’

The report produced by Rothschild – inappropriately codenamed ‘Project Hero’ –relates to student loans provided to those who enrolled at university pre-2012. Meaning if it were to happen, the majority of graduates, (many whom have graduated into a society of high unemployment) will be affected.

So what can you do about it? Well, as with most government policies, not a great deal. But you might start by writing to your MP and voicing your outrage at the proposed plan. The most recent generations of graduates have already suffered the effects of a financial crisis in which they played no part. They have paid more to go to university, paid increased train fares to go home during university holidays (thanks again, privatisation), paid more for food, bills and for rent, and then - to top it all off – graduated from university into a society burdened with deprivation, unemployment, hopelessness and social unrest. The Government needs to realise that current students and recent graduates cannot and will not be the scapegoats of all of their mistakes.

By Merry Neal- Law graduate from Queen Mary, University of London.

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