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Willetts recommends universities buy students' debts

Posted by Tom Walker in

According to a recent article by David Willetts, the Minister of State for Universities and Science up until David Cameron's July 2014 cabinet reshuffle, the government should consider selling its student loan book to universities to better incentivise higher education institutions to improve the employability of their graduates.

The loan book are the financial assets held by the government that is generated by the extension of student loans to the UK's student population. The asset has been the subject of intense debate following the recently released report by the Business, Innovation and Skills (BIS) Select Committee, in which the current student loan system was labelled as completely unsustainable by BIS committee members.

The proposal to sell the loan book to universities follows Vince Cable's objection to the sale of the assets earlier this month; however it is likely that Mr Cable's objections were not in respect of a specific sale to higher education institutions but rather in relation to a more generic sale to financial institutions such as pension funds and insurance companies.

Mr Willetts argued in his Financial Times article that the sale of the assets to universities would not only align the incentives of universities to those of the general public through increased graduate employment and employability, but that the assets would also provide HEIs with a steady source of income and a level of financial independence.

However, the former Universities and Science minister noted that the strategy would not be without hurdles. Firstly, it may create a selection pressure towards candidates that universities deem to be most likely to secure well-paid jobs, therefore discriminating against those students looking to pursue more academic careers (academic careers, by virtue of their low pay, increase the risk of low loan recoverability.) Secondly, the size of the assets could well dwarf university balance sheets, in effect making the higher education institutions debt collectors first, research and education institution second (if universities could even afford such a purchase in the first place.)

The commentary by Mr Willetts is, whilst being yet another twist in the higher education policy saga, both thought-provoking and potentially viable. It would not only provide a financing solution to the current unsustainable status quo, but could also help steer the UK's higher education towards a model that adds greater value to the economy.

Image courtesy of Flickr, Creative Commons