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Student loans now the Scottish Government’s most valuable financial asset

October 4, 2015

The growing use of student loans in Scotland has had very little attention in the Scottish Parliament over recent years.  Yet still-to-be-repaid student loans have quietly become the Scottish Government’s most valuable financial asset, worth £2.7bn  on its books, with around one in six Scots between 18 and 60 currently in debt to the government in this way.  Both these figures will rise over the years ahead. The implications of that deserve more scrutiny.

The current position

The Auditor-General’s report on the latest Scottish Government accounts, published on Friday, includes this statement:

The Consolidated Accounts show that the largest financial assets are loans of £2,617 million that have  been made to Scottish Water, to finance its capital investment programmes, and student loans valued at £2,685 million.

Readers will notice that student debt is the larger of the two.  It is, moreover,  due to increase substantially over the next few years.  By the time of the 2021 Scottish elections, the total value of such loans in the SG accounts is likely to be in the range £4.0-4.5bn (see below).

This is – it should be emphasised – not the face value of what the SG is owed i.e. what you get by adding up all the Scottish debts currently held on the SLC’s system.  That’s a  higher figure (£3.5bn), which doesn’t feature in the accounts: it can be found in the SLC’s annual loan statistics (page 1 here).  The £2.7bn is the “fair value”, reflecting what the accountants believe outstanding student loan is really worth to the SG at current prices, once non-repayment, interest rate subsidy and time value of money are all taken into account (see note on p64 here).

The SLC statistics separately show that there are currently 498,100 people with active Scottish loan accounts  (compared to around 3 million people in Scotland between 18 and 60, the age group for which loans will be most relevant).

This is significant stuff in public policy terms.

Change over time

The figure shown in the accounts for student loans has risen constantly over time: the table below takes the figures as far back as appears to be possible from Scottish accounts available on-line.

An upward trend is to be expected, as new borrowers enter the system more quickly than  old ones pay off their debt and leave.  But the figure has risen especially sharply in the last two years, increasing by £657m in that period: it took all of the six years before 2013 to rise by  similar amount.

“Fair value” of loans credited to SG accounts at end of FY Yr-on-yr change
£m £m
2001-02 458
2002-03 703 245
2003-04 854 151
2004-05 990 136
2005-06 1131 141
2006-07 1228 97
2007-08 1371 143
2008-09 1532 161
2009-10 1624 92
2010-11 1766 142
2011-12 1899 133
2012-13 1898 -1
2013-14 2214 316
2014-15 2555 341

Note: The last figure here is lower than the one quoted by the Auditor General.  The accounts give two end-year figures: the AG quotes the higher one, which is more comprehensive.  But here I use the lower one, as the presentation of loans in the accounts changed mid-series: as I’m not clear which is more comparable with earlier years, using the lower figure removes the risk of the change over time being overstated. The difference is due to whether £130m of “loans repayable within 12 months transferred to current assets” is included or not.

The recent rise is not temporary or transitional.  It is a permanent shift, reflecting the decision to make much greater use of student loans to fund student living costs in Scotland since 2013.  The steady position between 2011-12 and 2012-13 was due to an unusually large accounting adjustment, which wiped out 80% of the value of new borrowing in the accounts in 2012-13 (in what looks like just a bit of technical housekeeping).

What’s driving the recent jump can be seen in the pattern of gross new lending, repayments from graduates and the resulting “net new lending” in each year.  This table shows the total amount lent, the amount repaid and therefore  net new growth in lending in each year over the same period.

Gross new loans issued Loans repaid Net new lending
a b a – b
2001-02 225 20 205
2002-03 227 26 201
2003-04 224 36 188
2004-05 209 38 171
2005-06 200 50 150
2006-07 197 51 146
2007-08 211 62 149
2008-09 191 92 99
2009-10 202 92 110
2010-11 228 101 127
2011-12 246 115 131
2012-13 269 122 147
2013-14 436 141 295
2014-15 515 126 389
Note: In 2013-14,  part-way through the financial year, YSB and ISB were substantially reduced and additional loan released for living cost. 2014-15 was the first FY fully under new system.

Looking ahead, gross new lending can be expected to remain at the 2014-15 level and indeed grow some more: there are plans to lend more to postgraduates from this year, for example.  Repayments should increase over time as graduates progress at work, but not much more quickly  than new lending in the near future.   So net new lending approaching £400m a year is a reasonable prediction for the rest of the decade. A “fair value” downward adjustment of 29% (the percentage used in the last 2 sets of accounts) implies the value of the loan asset shown in the accounts should rise by around £280m every year for the next few years.  Hence the likelihood that student loans will be worth in the range £4.0-4.5bn by the end of the next Scottish Parliament in 2021.

What sort of asset is this?

This is a financial asset: it’s not like, say, a building, which the SG can simply sell off to get the value. Instead, revenue from borrowers will trickle in over time, with the annual income gradually rising and reducing what’s needed to spend on new loans.

The UK government is currently banking on a sale of some of the existing loan book, as a way of realising its value more quickly. But, as reported here by Andrew McGettigan, time is running out for the process to be kicked off, if the projected income is to appear in time.  The Scottish Government has stated it has “no plans” to follow suit (it is not clear whether or not it is opposed in principle to selling off these loans: it took part in the sale of a previous batch of older loans in 2013: see here).  McGettigan has argued that in any sale the government would be likely  to have to discount heavily the value of the loans being sold, in order to find a willing buyer.


The scale of student loans in the government accounts means that movements around them deserve careful annual scrutiny by the Scottish Parliament and clear reporting by government.  Up to now, student loans have attracted very little attention.

This author would like much more attention paid to how this substantial government asset is being constructed particularly from the future income of graduates who started from poorer homes, who borrow disproportionately because of Scotland’s very limited use of student grants.  But simply a wider awareness of how much spending now depends on loans, and the scale of the accumulating asset, would be a start.

Another consideration is that any decision whether or not to take part in a UK-government led sale would deserve serious scrutiny in Scotland: if any heavy discounting was involved it would have consequences for future budgets.  That’s aside from questions McGettigan raises about the wider desirability or defensibility of such a sale.

Last, the income which would be lost by writing off past student debt is now very large and rapidly growing, year by year.  Any party wanting in future to promise it would write-off past debt should do its sums carefully (and indeed should still have done so in the past). A government which decided to cut off a future revenue stream to its successors of this value would be operating in very high-stakes territory, whatever its constitutional status and freedoms.

The responsibility of the Scottish Government

The increased use of  student loan by the Scottish Government is driven strongly by changes in the UK budget.  Cuts to the cash budget for HE in England and large increases in loans there have both fed through into the Barnett formula.  So that the Scottish Government is making more use of student loan is not by itself something for which it can be criticised.  That’s an important point. But there’s more to this story than that.

The current administration  is still vulnerable to other criticisms:

Willful blindness in the past:  In the run-up to the 2007 the SNP campaigned strongly on a promise to abolish student debt (new and existing) under the slogan “Dump the Debt”, with a campaign especially focussed on students.  When challenged on the affordability of this, its response was robustly dismissive (as recalled in the second letter here: I’m presuming the author is the then Labour minister of the same name).  But affordability was a substantial point which deserved a more thoughtful hearing (and, as the figures above show, after the event debt was not dumped).

Lack of openness about its change of approach:  there has been a persistent lack of clarity about the extent to which student funding has become more loan-based in Scotland in recent years.  Exhibit A here is the 22 August 2012 press notice announcing the changes due in 2013.  It nowhere explains how the new “minimum income guarantee” will be achieved through a substantial increase in lending (which soon after was budgeted to rise sharply) and accompanied by a cut to grants.  There is still, to the best of this author’s knowledge, no official statement anywhere on the record that grants were cut in 2013.

Conflicting and confusing rhetoric on debt: The then Cabinet Secretary promised the Education Committee in 2013 that work was planned to encourage students to see loans as a good way of funding their studies (it’s not clear what was done to fulfill this promise).  But the default position of high-profile government rhetoric has continued to be that student debt puts off low income students and is something to be avoided, exemplified by comments made by the last First Minister on his last day in office.  There is emerging evidence of substantial ignorance of how the loan scheme works, especially among the least well-off. Fully one-third of the lowest-income young students in Scotland decline to use student loans, and try to get by on less than £2,000 a year of grant-based living cost support from the state. They need more help understanding their options, not reinforcement of their fears.

Lack of interest in the social justice implications of the way it has chosen to use increased loans (the issue which continues to most interest this author): by pouring loan into living cost support and seeing it as interchangeable with grant, the current administration has constructed a student support scheme which uniquely in the UK expects poorer students to borrow more than wealthier ones,  perpetuating inequalities  in wealth.  When this has been pointed out, the government has not been any more receptive than it was to those who pointed out the likely cost of abolishing student loan in 2006-07.

Lack of initiative and imagination: the SG has been given far more loan subsidy than it needs, in the absence of trying to fund a £9,000 fee regime.  It could in theory have done some other things with this than simply find ways to put students into further debt.  It might have (as in Wales) used some of it to pay for writing off an element of students’ debt.  Or it could be using the current debate on powers to object to new rules introduced around 2010, which prevent it from converting whopping amounts of  loan subsidy into smaller but still useful amounts of cash.  There’s a good case to be made that the current rules unreasonably lock away a large element of Barnett funding for one purpose (student loans).  There’s been no sign in public of this point being picked up and argued by the Scottish Government.

The overall impression given is that  the Scottish Government has embraced a substantially  increased use of student loan relatively unthinkingly (indeed almost gratefully, as the cash budget has come under pressure).  This perhaps explains why the White Paper on independence in November 2013 contained a substantial discussion on fees, but on living costs said only that the Scottish Government would “continue to provide appropriate support for living costs”.  There was no mention of what the future might hold for loans or the possible alternatives that a different constitutional settlement might open up, such as a graduate tax.


Government accounts are not there only to tick a box.  They are important in illuminating areas worth discussion and scrutiny.  The use of student loans in Scotland is long overdue that treatment.  Perhaps their emergence as the Scottish Government’s largest financial asset may help them finally get the attention they deserve.


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