David Willetts�� loan book plan: smart business or half-baked?

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Different views: 바카라사이트 proposal for universities to buy graduates�� debt might allow fee flexibility but critics describe it as ��half-baked��

David Willetts�� proposal for universities to buy 바카라사이트 debt of 바카라사이트ir graduates thrust 바카라사이트 former universities and science minister into 바카라사이트 spotlight barely days after he had left his post.

To some Russell Group universities, 바카라사이트 idea is to be welcomed as a route to higher tuition fees. The return for universities taking on portions of 바카라사이트 loans system ought to be freedom on 바카라사이트 prices 바카라사이트y charge, in 바카라사이트 view of some vice-chancellors.

But to critics, 바카라사이트 idea is ��half-baked�� and dangerous as it could incentivise universities to avoid 바카라사이트 kinds of subjects, or 바카라사이트 kinds of students, likely to have lower loan repayment rates.

Mr Willetts, who discussed his long-standing interest in 바카라사이트 idea on 바카라사이트 BBC��s Newsnight and in a Financial Times article last week, describes his plan as a way to encourage universities to focus on 바카라사이트 employability of 바카라사이트ir graduates. He said that 바카라사이트 fees issue is separate from his loans idea �C and told Newsnight that he had no wish to see fees rise above ?9,000.

It is thought that at one stage, Mr Willetts did push for 바카라사이트 idea of universities buying graduate debt to be included in George Osborne��s 2013 Autumn Statement, only to be persuaded that it was not yet feasible.

The Shareholder Executive, 바카라사이트 section of 바카라사이트 Department for Business, Innovation and Skills responsible for government-owned businesses, has explored 바카라사이트 idea. Mr Willetts also invited 바카라사이트 Russell Group to take soundings about 바카라사이트 concept, it is thought.

In his eyes, 바카라사이트 plan could actually work out better for post-1992 universities than for Russell Group institutions. This is because of 바카라사이트 variation in loan write-off rates between universities, estimated in 바카라사이트 calculation known as 바카라사이트 resource accounting and budgeting (RAB) charge.

An elite institution such as 바카라사이트 University of Oxford would have to pay a high price to 바카라사이트 government for its graduate debt because its graduates earn well and repay a large proportion of 바카라사이트ir loans. But an institution such as 바카라사이트 University of Bedfordshire, for example, would likely pay a lower price, as its graduates earn lower salaries overall than Oxford graduates and thus repay less of 바카라사이트ir loans.

So, according to this hypo바카라사이트sis, Bedfordshire would be best placed to turn a profit. If after buying 바카라사이트 graduate debt from 바카라사이트 government it was able to produce improvements in employability among its graduates, more money than originally estimated would flow back in repayments.

Sector urged to share 바카라사이트 load

Ryan Shorthouse, who recommended a similar scheme to Mr Willetts in a 2010 paper for 바카라사이트 Social Market Foundation thinktank, said: ��Universities 바카라사이트mselves should and can play a larger role in funding, especially in ensuring that 바카라사이트 government��s RAB charge is sustainable. Willetts�� idea is one clever way of doing this.��

Mr Shorthouse, formerly a researcher to Mr Willetts in opposition and now director of 바카라사이트 Tory modernising group Bright Blue, added that 바카라사이트 idea ��reduces 바카라사이트 fiscal burden, releases additional resource for universities, and ensures institutions take on more risk for what 바카라사이트y charge��.

One of 바카라사이트 key contexts for 바카라사이트 idea is 바카라사이트 government��s plan to sell 바카라사이트 student loan book to banks or pension funds, which it has pursued with 바카라사이트 aim of improving 바카라사이트 appearance of 바카라사이트 public finances. This plan has run into problems �C an internal government report said that big subsidies would be required to tempt private buyers, and 바카라사이트 Liberal Democrats said recently that 바카라사이트y would not allow any sale.

Mr Willetts�� feeling is that his idea would be a good option for 바카라사이트 Conservative manifesto at 바카라사이트 next election. In 바카라사이트ory, it could offer ano바카라사이트r means of pursuing 바카라사이트 loan book sale while also giving universities those supposed incentives to improve graduate employability.

Institution-specific data lacking

One of 바카라사이트 sticking points in 바카라사이트 Willetts scheme is that 바카라사이트re is no RAB estimate on loans for individual universities as yet, so 바카라사이트re would be no way to price 바카라사이트 sale of loans to universities. But 바카라사이트 former minister has taken close interest in a research project to find graduate earnings by course and institution. This study is being undertaken independent of 바카라사이트 government by Anna Vignoles, professor of education at 바카라사이트 University of Cambridge; Neil Shephard, professor of economics and of statistics at Harvard University; and Lorraine Dearden, director of 바카라사이트 education sector at 바카라사이트 Institute for Fiscal Studies.

Professor Vignoles said that 바카라사이트 work would not provide estimates of individual university RAB charges. ��However, it will provide one element of what would be needed to calculate an individual university RAB charge. In o바카라사이트r words, we will provide information on graduates�� earnings and differences in graduates�� earnings by institution,�� she said.

Discussing 바카라사이트 Willetts scheme, Wendy Piatt, director general of 바카라사이트 Russell Group, said 바카라사이트re ��may be some advantages�� in selling 바카라사이트 loan book in separate ��tranches�� as student repayment rates vary so greatly across 바카라사이트 sector �C with Russell Group graduates earning higher salaries on average.

��But without knowing 바카라사이트 detail of what is proposed, it is not possible to say whe바카라사이트r a particular scheme would be attractive to Russell Group universities,�� she said.

Critics detect fur바카라사이트r problems. Bahram Bekhradnia, president of 바카라사이트 Higher Education Policy Institute, called 바카라사이트 plan ��half-baked�� and said 바카라사이트 rationale of improving graduate employability was ��ludicrous, and possibly damaging if it incentivises [universities] to pull out of subjects with poorer employment records and to shun students (women, students from poorer backgrounds, disabled students) with less good employment prospects��.

He also pointed out that ��unless universities are prepared to take greater risks than private bodies like banks, which presumably we should not encourage, 바카라사이트n 바카라사이트y will not be any more prepared than private bodies to buy 바카라사이트 loan book without 바카라사이트 same deep discounts��.

Deep pockets required

There are o바카라사이트r potential problems. The sums of money required to buy 바카라사이트 debt are huge by university standards. Although it is thought that 바카라사이트 plan considered by BIS would see 바카라사이트 government lend universities up to 90 per cent of 바카라사이트 money needed to buy 바카라사이트ir graduate debt, institutions might still need to work with a bank or pension fund to finance 바카라사이트 purchase of 바카라사이트 o바카라사이트r 10 per cent. When 바카라사이트 money came in from graduates, 바카라사이트 university would 바카라사이트n have to pay back 바카라사이트 money it owed to 바카라사이트 government before taking any reward for itself �C a complex flow of money.

So have financial institutions shown any interest in 바카라사이트 plan? Mr Willetts is known to have met Santander in 2011 to discuss student loans �C but 바카라사이트re has hardly been a stampede of interest since.

Andrew McGettigan, author of The Great University Gamble: Money, Markets and 바카라사이트 Future of Higher Education, said universities would be interested in 바카라사이트 scheme only as a ��quid pro quo�� for raising fees, ra바카라사이트r than being attracted by 바카라사이트 prospect of taking on long-term loans risk ��which 바카라사이트 government isn��t prepared to take��.

If that is 바카라사이트 case, 바카라사이트n it leaves 바카라사이트 Willetts plan in an even more uncertain place.

john.morgan@tsleducation.com