| In April 2009, the Student Loans Company | | | | Over the past 10 years, I have seen the negative |
| announced that it will now be registering defaulting | | | | effect of this situation. I have worked with many |
| customers with the credit reference agencies | | | | graduates who have taken student loans which they |
| (Experian, Equifax and Callcredit). Initially, this will only | | | | have not been able to repay on leaving higher |
| target customers who took out loans before 1998. | | | | education. If a graduate is lucky enough to find a job |
| Student loans taken out after 1998 are collected by | | | | after leaving university, many find that they continue |
| HM Revenue and Customs (HMRC) with payments | | | | to borrow to fund their more expensive lifestyles. |
| taken directly from earnings. This makes it much | | | | Subsequently they fall deeper into debt which is |
| harder for these customers to avoid paying their | | | | made even more difficult to repay because of their |
| debt. | | | | student loan repayment obligations. |
| The student loans Company believes that it has up | | | | Of course, controlled borrowing does not necessarily |
| to 60,000 customers who took out loans before | | | | lead to credit problems. I strongly believe that where |
| 1998 who are failing to pay. Loans in default that will | | | | people are maintaining their student loan repayment, |
| be registered with the credit agencies include those | | | | obligations, then they should have the opportunity to |
| still owned by the student loans company itself and | | | | take further credit. These facilities can be vital in |
| also Honours Student Loans which purchased a | | | | helping a graduate establish a new career which may |
| number of the loans over the past 10 years. The | | | | require new accommodation, clothing and increased |
| Student Loans Company believes that half of these | | | | living expenses. However, I agree with the Student |
| (30,000 individuals) will end up being registered as | | | | Loans Company when it argues that it is vital to |
| defaulting with the credit reference agencies. | | | | make data on its problem clients available to potential |
| Defaulting clients will be given 28 days to agree a | | | | lenders. If this does not happen then there is an |
| repayment or deferral plan. After this, customers | | | | increased risk that those already struggling to repay |
| who have not deferred and are not meeting | | | | what they owe will be offered further credit and fall |
| repayment obligations will be registered with the | | | | deeper and deeper into debt. |
| credit reference agencies. Once a default is | | | | I would think that commercial lenders will also |
| registered, it will remain on the individual's credit file | | | | welcome this development which gives them the |
| for 6 years in line with the current industry practise. | | | | opportunity to minimize their losses by not lending |
| The default will show up if and when the defaulting | | | | where they feel that the risk of non payment is too |
| client tries to apply for credit in the future. Many | | | | great. Ultimately, if individuals who are defaulting on |
| credit card companies and high street lenders will | | | | their student loan repayments are allowed to take |
| then be put off from offering new credit | | | | further credit, it is likely that there will be difficulties |
| agreements or extending existing facilities. | | | | with the repayment of the commercial credit into the |
| The question is whether this new initiative is a good | | | | future. If this happens and the individual then chooses |
| or bad thing? Prior to the initiative's launch, | | | | to declare them self insolvent (entering into either an |
| information about the non payment of student loans | | | | Individual Voluntary Arrangement (IVA) or |
| company debts was not disclosed. This meant | | | | Bankruptcy), the student loans Company is protected |
| potential lenders had no idea that the customer had a | | | | as their debt will not be written off within these |
| past history of credit problems. Arguably, this was | | | | procedures. However the commercial lenders will lose |
| not a satisfactory situation for either the debtors or | | | | their shirts. This is clearly not a good prospect for |
| potential lenders as people who were not in a | | | | lenders or the wider economy which, as we have |
| position to repay their current debts were being | | | | seen in the past year, may suffer greatly on the |
| offered additional credit. | | | | back of unpaid bad debt. |