Revealed: how councils profit from student debt

They join the hedge funds and banks cashing in after £3.3bn of loans are sold on the cheap by Government

FIVE local councils and a string of investment giants are investing in student loans sold off on the cheap by the Government, The Mail on Sunday can reveal.

To raise cash last December, Ministers ordered the Student Loans Company to sell debt estimated to be worth £3.3billion.

The Government later drew stinging criticism from MPs for accepting just £1.7billion from investors.

Hedge funds, private banks and asset managers were among 59 buyers which will be passed any repayments made by students along with the interest accruing on their loans.

Official figures show the investors are in line to pocket annual returns of about 6.5 per cent a year with some reaping as much as 13 per cent.

The Government’s own figures show the loans will return £1.6billion more to investors than they paid. Ministers have refused to name those in line to profit.

Now an investigation by The Mail on Sunday can reveal that 17 per cent of the loans have ended up in the hands of powerful investment companies.

These include Fidelity, Prudential, Invesco, UBS and Wells Fargo banks and asset manager Amundi, which is owned by French bank Credit Agricole.

Furthermore, analysis of Bloomberg data shows a number of councils – Hounslow and Greenwich in London along with Dorset, Highland and Scottish Borders – invest in funds which receive income from student loans.

Some of Hounslow’s pension fund, for example, is invested in the Fidelity Investment Multi Asset Income Fund, which holds student debt.

Scottish Borders invests part of its pension fund in the M&G Alpha Opportunities Fund, which is owned by Prudential and holds £340,000 of the loans.

The UK’s student loan system has long drawn criticism from campaigners with most graduates in England leaving university owing tens of thousands of pounds.

Interest rates on loans currently being issued to students to cover fees of up to £9,250 a year south of the Border have risen to 6.3 per cent. The Government has said it intends to privatise all of the loans which were issued to students before 2012 and it is weighing up whether to sell off more.

A spokesman for the National Union of Students said: ‘The sale of student loans itself has already led to a significant loss of future income for the public purse and students are once again being asked to pick up the bill.

‘That students may be racking up enormous levels of personal debts to supply profits to private investment firms is troubling enough. If funds are also used to prop up struggling local authorities it would demonstrate how morally bankrupt our current funding model actually is.’

Angus Hanton, co-founder of the charity Intergenerational Foundation, said: ‘After successive governments stacked the cards against young people with sky high interest rates and harsh loans terms, you now have pension funds smelling high returns – which will go in the main to their older members.’

The tranche of debt sold off by the Government relates to students who graduated between 2001 and 2005.

At the time, young people could borrow up to £1,000 a year to cover fees. They began repaying the loans when they started work, handing back 9 per cent of earnings above £18,000 a year. They are currently being charged interest at 1.75 per cent. All repayments are collected by the taxman and passed to the new owners of the loans.

The Government had been trying to privatise its 2001-2005 student loan book since 2013. After it pressed ahead last year, the influential Public Accounts Committee of MPs blasted the Department for Education and UK Government Investments, which manages state assets, for getting only 48p for every £1 of supposed value in the loan book.

The committee said the Government had failed to demonstrate ‘how the deal is in the best longterm interests of the taxpayer’ and attacked officials for refusing to name those who would collect the profits.

In a heated exchange in the House of Commons, civil servant Jonathan Slater argued that ‘you get a better price if you apply the confidentiality rule than if you do not’.

In response, the committee called on the Government to release the names of investors in any future sales.

The Mail on Sunday submitted Freedom of Information requests asking for the list of those successful in last year’s auction. But officials refused and cited an exemption where the ‘commercial interests of any person’ may be compromised.

Councils defended their investments last night, saying the funds ‘maximised’ returns in the interest of their members. Dorset County Council said it was a priority to ‘maximise the value of investments’. Highland Council said investment decisions are made in line with principles which govern where it can invest.

Greenwich Borough Council said a panel was tasked with finding the best way to pay pensions to beneficiaries. Scottish Borders Council said its holdings were part of a ‘balanced portfolio’. Hounslow Borough Council did not respond to requests for comment.