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Baroness Farrington of Ribbleton: So that we may understand fully the Government's position with regard to the proposals in the Bill, can the Minister say exactly what the Government intend? Do they intend that all students can choose between a loan from the Student Loans Company and a private sector loan? Do the Government intend that there should be no greater constraints on the loan options available through the Student Loans Company as opposed to the private sector scheme? Do the Government intend that the total cost--that is, the cost to the student and the subsidy to cover the administrative costs of the institutions--will be no greater under the private sector loan scheme than under the Student Loans Company scheme? Can the Minister assure us that the administrative costs will not be greater? Can the Minister confirm that the subsidy will cover only administrative costs and will not be a direct subsidy to the financial institutions? If the private sector lender wishes to offer longer repayment terms, is that merely a matter between the lender and the borrower? In those circumstances, and in the name of choice, would the same options be available to students if they took out their loan through the Student Loans Company?
Lord Desai: I support the amendment which was moved by my noble friend Lord Morris of Castle Morris and spoken to by the noble Lord, Lord Tope. Following what my noble friend said, I take it that it must be an "and/or" situation. Obviously, private sector lenders will want to offer a variety of "products", if I may use that word, and will try to segment the market as they offer them to students. It would not be desirable to restrict the kind of packages that may be offered. That is fine. Indeed, I would even go so far as to say that it would be fine if the lender wanted to offer a loan at a lower rate of interest to somebody who was thought to be a better risk.
However, the amendment seeks to point out that if lenders do that, it must be because they find it profitable. They cannot offer low interest loans but then complain that that is costing them more than the student will pay. The principle is that subsidies should not be paid when the loan-givers are cherry picking, as it were. That is a perfectly sound, free market principle. Indeed, I would even recommend it to the Minister because I am sure that his party believes in it. Firms which are cherry picking are operating in highly profitable areas and should not, therefore, be subsidised. However, subsidies should be available where the market may find it difficult to make a loan because the risks are too great or because those seeking loans may have uncertain career prospects.
I believe that what my noble friends are trying to say in the amendment is that subsidies should be paid only to deserving lenders in deserving cases, not right across the board. I have a genuine question on that for the Minister. Is a subsidy element to be calculated for each product which is offered or will the subsidy be given to a firm across all of its loans? Will a firm be able to offer a portfolio of loans--some good, some bad--and then say, "This is what we need in the way of a subsidy", or is the subsidy to be given only for specific hard cases where the market is thin? I should be grateful if the Minister could respond to those points.
Lord Henley: Oh dear, the party opposite really does not change at all. Noble Lords opposite simply do not like choice. The amendment is designed further to restrict the choice that would be available to both institutions and students. The noble Lord, Lord Morris of Castle Morris, spoke long and eloquently about the level playing field, that cliche, and his experiences on the level playing field.
We have made it clear that private loans will be offered on similar terms to public ones. The invitation-to-tender documents, copies of which the noble Lord has seen and which are in the Library, make clear that private loan interest rates would be no higher than public ones. Neither would involve real interest rates. Similarly, private loan repayment periods would be no longer.
As the noble Lord knows from the 1990 Act, interest rates and repayment periods for public loans are set out in regulations. Our contracts with the private lenders will provide that any changes to these periods in the regulations will be reflected in similar changes to private loans.
As for the comments made by my honourable friend in another place in answer to a question--I refer to the comments which the noble Lord, Lord Morris, quoted--we think that there is a case for some innovation. That is why the invitation-to-tender documents envisage that private loans might--I repeat "might"--charge lower interest rates in return for a shorter repayment period. I do not accept the noble Lord's point that that would be attractive only to the richer student with his own private means. It might be in the interests of a student, even if he does not know what his future will be, to pay out a larger proportion of his income so that he can get rid of the burden earlier. That would be a matter for him. It is something which the private sector institutions should continue.
I do not accept the point made by the noble Lord on this and other occasions that there is not much else that the financial institutions can offer. I accept that in the short term the terms will be broadly similar and that the emphasis will be very much on service enhancement and on providing a quicker service than that offered by the Student Loans Company. Obviously, a major financial institution can offer a much bigger network of offices which the student can use. Obviously, in the longer term, I would expect new products to emerge as the private institutions develop their thinking in this area.
That increase in product choice for the consumer, with no downside for either the taxpayer or other students--whatever the noble Lord, Lord Desai, might say about cherry picking--is just the sort of benefit that will flow from the involvement of the private sector. In the longer term, loan products will be increasingly tailored to the needs of individual borrowers. For that reason I hope that the noble Lord will feel prepared to withdraw his amendment which I think is unnecessarily restrictive. There is no case for building in such inflexibility.
Baroness Lockwood: If a student took out a loan at a lower rate of interest in order to repay it more quickly, and if that student's earnings were 85 per cent. of the national average, would those provisions apply? If so, surely there could be no certainty that, having taken out the loan at a lower rate of interest, it would be repaid more quickly.
Lord Henley: If I may say so, the noble Baroness shows a fundamental misunderstanding of the Bill. This is a very simple Bill which, in effect, simply changes the system of having one single lender, the Student Loans Company, to having a plurality of lenders. The Student Loans Company will still be able to offer the same terms and conditions, but we hope that a number of other financial institutions will sign up to the advantages that we are proposing for both them and students. Therefore, the same conditions, the same protections and the same income-contingent arrangements will apply. Indeed, it has been put to me several times that there are no income-contingent arrangements in the present system, but under the new system the individual student will be able to have such protection. The subsidy is designed to protect financial institutions from that.
Baroness Farrington of Ribbleton: The Minister said that there is room for innovation. He said that it was possible to amend the system of repayment to allow for lower rates over a shorter period through the private sector loans scheme. He did not say whether the same freedom and choice would be available through the private sector loan scheme to increase the interest rate and lengthen the period of time to whatever seemed an appropriate arrangement as between the borrower and the lender. He did not say whether the same choice would be available to students who, for whatever reason, chose to take up their loan arrangements through the Student Loans Company scheme.
I was pleased to hear the Minister say that we now have a ceiling on the cost of the subsidy to the private sector scheme, and that it will be no greater than the subsidy to the public sector scheme. I presume by that that he was referring not to the amount of money that the student borrows but the administrative and any other subsidy arrangement that applies at the moment to the Student Loans Company scheme, and that that would be the upper ceiling for the private sector scheme.
Lord Henley: If the noble Baroness is asking me to come back on that point, yes, I made it clear that in this sort of arrangement the level of public subsidy concerned would be the same. I am not seeking to say anything other than that. As regards the earlier points made by the noble Baroness, she will be aware that under the 1990 Act we have an ability under regulations to lengthen the repayment period and to make other such adjustments. That is something that will involve considerable cost, and is something that will have to be addressed in the light of the extra costs.
What we are saying about the private sector is that we see a case, if it wants it, for it to tailor the product in the right way and the manner appropriate for the individual student and, as I put it, to charge lower interest rates in return for shorter repayment periods. It is up to the banks themselves to develop such schemes. They will not receive extra subsidy for devising a scheme that might be of greater benefit to individual students, through a longer or shorter repayment period, or whatever. In that, there is a level playing field.
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