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Student Loans

Volume 575: debated on Thursday 13 February 2014

On 25 November 2013, Official Report, column 2WS, I announced the completion of the sale of the remaining publicly owned mortgage-style (MS) student loans under the Education (Student Loans) Act 1990 as amended by the Education (Student Loans) Act 1998.

Administration of the loans has remained the responsibility of the Student Loans Company (SLC) while work was being undertaken to prepare for migration of the sold accounts to the purchaser, Erudio Student Loans Ltd.

Migration of accounts is now commencing and borrowers will soon begin to receive letters informing them of this change and any actions they are required to take as a result. The terms and conditions of borrowers’ loans—including the interest rate charged, which will continue to be set annually by reference to published RPI figures—are not changing as a result of the sale, and borrowers will not need to take any action at this stage. Successful migration will trigger the payment to Government of the second and final instalment of ca. £43 million out of the total purchase price of £160 million.

Late on in the sale and migration process, a potential issue was identified with some of the arrears correspondence that had previously been issued by SLC to a proportion of MS loan borrowers. These letters could be interpreted as having not been fully compliant with the Consumer Credit Act (CCA) 1974—as amended in 2008—and associated secondary legislation.

Although borrowers are not thought to have been disadvantaged as a result, the decision has been taken to adjust the balance of the affected loans. Erudio Student Loans Ltd will remove any loan interest and/or charges paid by the affected borrowers from the time that they first received such a letter. Borrowers need take no action and all affected borrowers will be informed as part of migration.

Migration represented the first practical opportunity at which affected borrowers could be notified of their individual circumstances and at which their accounts could be updated. The agreed purchase price of £160 million reflects the £6.25 million cost of balance adjustments and associated administration.

Additionally, there are a small number of affected customers who paid off their loans prior to the sale—or had them cancelled under the loan terms—and whose loans were consequently not included in the sale. The SLC will separately be making contact with these customers to make arrangements for a refund. The cost of this is estimated at £0.75 million.

Income contingent repayment (ICR) loans, offered to students after 1998, were not included in the 25 November sale and these loans continue to be owned by the Government and administered by the Student Loans Company. As ICR loans were not issued under the CCA, they are not affected by the issue identified above. The Government are in the process of preparing for a first sale from the ICR loan book by the end of 2015-16.