Student loans

gmjohn

Hi I am a volunteer debt adviser 

I have been reading lately that the government are going to sell off student loans taken before 2012. This has raised a question in my mind that I hope you can help with.

If the loans are sold off do they still retain the status of being a student loan and therefore an excluded debt as they will now have been purchased as a commercial agreement?

Also if a student takes out the loan but doesn't complete the course (perhaps failing after one year) this loan becomes due. If this is sold to a private debt collection company does it still retain the status of a student loan even though it is now owned by a private company?

kaMelo

gmjohn said:

Hi I am a volunteer debt adviser 

I have been reading lately that the government are going to sell off student loans taken before 2012. This has raised a question in my mind that I hope you can help with.

If the loans are sold off do they still retain the status of being a student loan and therefore an excluded debt as they will now have been purchased as a commercial agreement?

Also if a student takes out the loan but doesn't complete the course (perhaps failing after one year) this loan becomes due. If this is sold to a private debt collection company does it still retain the status of a student loan even though it is now owned by a private company?

All student loans retain the status of "Student Loan" no matter who owns it as long as the student complies with the terms and conditions they originally signed up to when taking the loan. The purchaser of the loans cannot change these terms and conditions, only the original lender can do that.
In the case of the older "Mortgage Style" student loans that have been sold off already, these terms require you need to keep the company, mainly Erudio but there are a couple of others, up to date with things like deferment or repayments ( depending upon whether you have reached the earnings threshold)  your address, an active direct debit in place etc,  If you do that then it will always be a student loan until it's extinguished no matter who owns it.  Only if the former student breaches the terms they agreed to can the account default. Only once it's defaulted can the loan become a "debt" as such, as the loan company can use various methods to recover the money.
Whether they will or not, who knows but considering these accounts can become statute barred they don't seem overly proactive.

In the example you describe, "Failing after one year" it depends upon what you mean. If the student completes one full year but decides it's not for them going forward then any loans taken in that year are covered under the same terms and conditions for repayment as someone who completes their course. If however the student decides part way through a year that it's not for them and leaves the course, any student loans taken up until their leaving day are covered in the same way as above for repayment but, as student loans are paid in tranches there is a possibility of an overpayment. Any part of the loan that covers time after they left the course is classed as an overpayment, is repayable in full immediately and not covered under usual repayment terms.

With the later "Plan Style Loans" these haven't yet been sold off but I would expect the same. The repayment method is different in that it's taken from wages so harder for it to all go wrong but as above, it's a student loan until it's written off or defaulted no matter who owns it.

gmjohn

Thanks for the reply. So are you saying that once a loan is defaulted it then looses the benefit of being an excluded debt in insolvency? The scenario I’m thinking about is a client who done 2 years at university then left the course without completion but had taken the student loans for these years. The student loan company then demand the repayment in full (I think) This client can not afford to pay the loan back and is chased by a debt collection agency. The way I understood it as long as the debt was still owned by the SLC then it was still an excluded debt for insolvency purposes so I don’t understand your point about default. Also if they sell on these loans to private company does the debt retain the status of excluded debt? Hope I have explained this right I just seem to have had a few lately. 

kaMelo

I'm not sure I agree with you that an excluded debt in bankruptcy is a benefit but leaving that aside for a moment, it's important to know what type of student loans you are talking about.  Mortgage style student loans, taken by students whose course started prior to September 98, work very differently to the later plan style loans and post-graduate loans.

Mortgage style loans are more onerous on the former student in what they continually have to do, this means there are more ways it can go wrong, ways that cannot happen with plan style student loans. For that reason I'm going to assume the example you talk about is a mortgage style loan.

A couple of questions, who owns the loan now and did they fully complete both years or is it possible they left early in one or both years? 
If they completed the years in full it doesn't matter that they didn't complete the course, the repayment terms are exactly the same, only when you reach the earnings threshold.  As long as the former student also keeps their end of the deal up, deferring, keeping details up to date, etc, etc. then the loan will never be repayable on demand and will all be written off 25 years from the last loan start date.
If however they left the course prior to the end date there will possibly have been an overpayment. Any loans taken when they are actually a student are covered under the standard repayment terms, any loan amounts for dates after they left their course are an overpayment. Any overpayment is not subject to the same terms and is repayable immediately. 
If the former student has failed to keep their end of the deal up, either by not deferring, not keeping details up to date etc, etc, then the loans will default, repayable in full and never be written off.
You need to find out which one fits the client as the exact details matter.


All plan style loans are still with SFE and, other than the overpayment terms, operate very differently. SFE contact the former students employer to set up repayment through deductions from earnings for any monies due. Theoretically they could default/become statute barred but the repayment method used makes this point irrelevant. For this reason I'm assuming you are not talking about someone with a plan style loan.

gmjohn

thank you a very well structured and helpful answer 😀

tingzy90

Hello. Given the information above, I thought I would mention in that in the last few months, despite an increase in pay, my monthly payment to the student loan company has decreased. Do you think this decrease could have anything to do with the previous posts?
Also, it is a very interesting timing given the increase in interest rates. 

TheMilkmansDad

which plan are you on - the threshold amount changes most years

https://www.gov.uk/guidance/previous-annual-repayment-thresholds

silvercar

Someone has resurrected a thread that is over a year old!

student loan questions are best placed on the student board here: https://forums.moneysavingexpert.com/categories/student-money-saving