Earlier this month the UK government announced the forthcoming sale of part of the English student loan book. The sale covers a selection of loans made to roughly 450,000 students which first became repayable between 2002 and 2006. This is the first of a planned 4-year programme of loan sales relating to loans issued before 2012 and is expected to complete over the next several months.
How will this be achieved in practice? The loans will get pooled and then sold to investors via the issuance of bonds through a securitisation structure. The loans will be sold at below their face value in recognition that not all of the debt is expected to be repaid in full. Investors will receive monthly payments on their bonds plus interest while the government receives quick cash and pushes the risk of non-payment of the underlying loans onto investors. This is akin to a similar mechanism used in the US, as opposed to assigning or transferring the individual loans in their original form to a major investor.
Students are expected to be largely unaffected by the proposed loan sales, save for being informed if their loan is the subject of any such sale. HMRC and the Student Loans Company will continue to perform the same collection functions as currently. There will be no opportunity for investors to change the underlying student loan terms.
If you are a potential investor and would like to understand the legal implications in relation to the proposed loan sales described above, do get in touch with Matthew Padian or Aslihan Ozbey, or your usual contact at Stevens & Bolton.