The government has sold a portfolio of student loans worth around £900 million to a private debt collection agency.

The privatisation of the loans – which were taken out by students in the 90s – is part of the government’s plan to raise £15 billion from the sales of public assets to boost investment.

There have been two sales of student debt to private companies in the past but this will be the biggest, reducing net public debt.

Toni Pearce, President of the NUS, said: "This announcement is extremely concerning and is one that will see the public subsidising a private company making a profit from public debt, which is incredibly problematic."

The government is selling the loans for £160 million despite their worth being estimated at more than five times that amount.

Pearce said: "The impact of this sale won’t only affect borrowers, but will affect everybody. The simple fact is that having these loans on the public books would be better off for the government in the long run. Selling off the loan book at a discount to secure a cash lump sum now doesn’t make economic sense." 

It is thought that the coalition ultimately wants to sell all publically owned student debt, the value of which is estimated at around £40 billion. Concerns have been raised that this can only be profitable for private companies if the limit on interest for repayments is raised, increasing the burden on those who have bought student loans.

However, cabinet ministers have said that sale of the student loan book will not result in increased interest rates for students.

In June, Vince Cable, Secretary of State for Business, Innovation and Skills, said: "I have ruled out categorically changing the terms of interest rates charged to graduates with existing student loans taken out before 2012. The Rothschild study which was completed in 2011 was a feasibility study which looked principally at how to sell the student loan book. Work on the feasibility of selling the outstanding student debt continues.

"However, the study also contained a proposal which suggested a change in interest rates charged to existing students – that proposal was comprehensively dismissed two years ago and will not be taken forward by this government."

NUS President Toni Pearce said: "We recently secured assurances from David Willetts that terms and conditions on student loans would not be changed as the result of a sale, but we want to see all students protected on this by law."