A clash between the Department for Education and the Treasury over how to value the government’s student loans portfolio may have led to more than £600m in income from future loan repayments being overlooked, the National Audit Office (NAO) has warned.



The watchdog also advised that the government should take “a comprehensive view” and carefully consider the potential impact on the government’s finances of future loan sales.

Examining last year’s sale of a tranche of loans to 400,000 students, the NAO was highly critical of the Treasury’s calculations and their differences over likely repayment rates from the DfE’s forecasts.

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The watchdog said: “While HM Treasury uses one method to support its decision to sell student loans, the [DfE] uses another method to calculate the cost of student loans when they are added to the government’s balance sheet.

“This reduces transparency and risks government not knowing the ultimate value and cost to the taxpayer of student loans when they are issued, and of selling assets too cheaply.”

The NAO said the government’s sale of the first batch of student loans was carried out efficiently and achieved value for money by selling at the upper estimate of what the market was expected to pay. But it criticised the gap between the valuation used by the Treasury and those by other government forecasts of repayment rates.

“The inherent limitations in the way the government assesses the value of student loans when selling them increases the risk that they could be sold at too low a price,” said Amyas Morse, the head of the NAO.

“The rapidly growing student loan book is a significant government asset, so I would expect to see greater consideration of the financial impact of selling and awareness of whether this provides value for money to taxpayers.”

In response, a government spokesperson said the NAO’s report recognised that the sale of the pre-2012 student loan book “was conducted efficiently, represented good value for money for taxpayers, and does not affect borrowers”, as well as raising £1.7bn.

“Student loans are designed so that borrowers only repay when they can afford to – this gives more people the chance to go to university and get on in life, but also means many students will never fully pay back their loans.

“The government has been completely clear about why the face value of the loans was higher than the sale proceeds and, as the report notes, these were older loans so many borrowers had already repaid in full by the time of the sale,” the spokesperson said.

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The report accused the Treasury of being narrowly focused on lowering its key public sector net debt (PSND) figure. “However, PSND provides a narrow view of debt, as it does not take account of the potential income government would receive from student loan repayments. We estimate a net loss of future receipts from student loan repayments as a result of the sale of around £604m,” the NAO concluded.

The NAO’s report on the sale of the loans follows a warning this week by the Office for Budget Responsibility (OBR) that said the government was underestimating the costs of funding higher education through its system of income-contingent student loans.

An announcement by the Office for National Statistics that it was looking at changing the way student loans were accounted for could raise government borrowing estimates by about £15bn a year, according to the OBR.

The total value of student loans in England stands at more than £100bn and is expected to rise to more than £470bn at present value by 2049.