As more undergraduates at English universities take out student loans, the government is rightly looking at selling this increasingly significant asset. The arguments for doing so have centred on the merits of the sale as a financial transaction. But beyond this, I believe we should plan a loan sale with a bigger and bolder rationale. We should give universities the opportunity to buy the debt that their graduates owe.
To do so would be to give the universities a direct financial interest in ensuring their graduates secure well-paid jobs that enable them to pay back more of their debt sooner. They would gain, as would their students, from improving graduate employment rates and earnings. They would do more to keep in touch: they could offer extra help to graduates without work, and refresher courses to boost their skills and earnings.
Such an income stream could enhance their autonomy. Graduates who go abroad might be more likely to keep in touch with their university than with the government-backed Student Loans Company; a university could even suggest its graduates carry on making donations after the loan was repaid. The SLC does not, and could not, do this.
While leading universities could enjoy a solid income if they chose to own their graduates’ debt – doing so would not be compulsory – the sector is diverse, and some have poorer employment outcomes and lower graduate repayments. This does not necessarily mean they are bad universities; they might be taking students from more disadvantaged backgrounds with weaker entry qualifications. Nonetheless, some could do better and, for the first time, they would have a financial incentive to raise their game through pushing their students harder towards success in the jobs market. Indeed, the gains – for both students and universities – would be greater in these cases than for universities whose graduates already do well. The more universities improved graduate job performance, the more their financial returns would increase.
There are objections. First, there is more to university than a graduate’s subsequent employment and earnings. It is not a failure if you become a theologian instead of a banker. (I did recently meet a theology graduate who was helping a bank design sharia-compliant loans: the links between what we study and the jobs we do can be marvellously indirect.)
Would universities want to recruit only the type of student who goes to a well-paid job? English education is already bedevilled by selection effects that make it hard to judge whether an institution is performing excellently or has merely managed to attract students who would anyway have done well.
But universities already charge tuition fees that cover the cost of their students’ education. No one would force them to buy their students’ debt. They would only choose to do so if they could improve the likelihood that it would be repaid.
The second concern is about whether universities have strong enough balance sheets to take on such a risk. The students at a university with 10,000 undergraduates might between them accumulate more than £100m of student loans each year, which would soon dwarf all the university’s other assets. A university could buy only a portion of the loan book, however. It would then have the same incentives to provide a quality education, making the remainder of the book more attractive to banks or other investors.
Sadly, when I looked at this idea in government I concluded it was not yet deliverable. Government IT systems could currently not cope – but they should be able to do so in the next few years. The law would also have to be amended to allow universities to share information about their graduates with the relevant agencies – provided, of course, that they first obtained proper consent.
This is not government policy and could not happen straightaway. Selling the student loan book would be not just an asset sale – however useful – but a far-reaching improvement to our education system as well.
The writer was minister for universities until July