Thousands of graduates at risk of overstretching

Hundreds of thousand graduates and students could be granted credit they can't afford because the government has refused to share details about student loan accounts.

The credit industry uses shared data about an individual's levels of debt and repayment history as a tool to base its lending decisions on.

But whether an individual has a student loan is information that is not available to commercial lenders.

The impact for people once they have completed their studies is twofold depending on which style of student loan the individual has:

  • Someone who is repaying student debt through income deductions at source could be granted credit they cannot afford because their salary is effectively less than they have declared.
  • Someone who is having difficulty repaying the old mortgage style student loan from income could be granted further credit because their repayment history is not available to commercial lenders when they are making a lending decision.
  • Someone who has an impeccable record of repaying the old style student debt may be turned down for credit as they have no credit history, which can be accessed by a lender when it is considering an application for credit.
  • Someone who is repaying student debt through income deductions at source could be turned down for credit because they have no credit history.

Callcredit industry affairs director Mel Mitchley says:

"The government has been putting a lot of pressure on lenders to know their customer better and make more responsible lending decisions.

But there are 2.8m people in the UK who are currently under the credit radar because of its decision not to share student loan information.

To many people it's a no-brainer, the information should be shared as it would help people who have a responsible attitude to their student debt and prevent those who are already in difficulty being granted further credit. We need to have further debate on the matter."

Student Loan Facts (1)
  • 2.8m people had student loans with a value of £16.45bn at the end of March 05.
  • The Student Loans Company's collections department resolved 196,000 cases in the 2004 / 05 tax year and made significant inroads with a further 100,000 cases on the old mortgage style student loan which was superseded in 1998. These figures suggest a large number of ex-students encounter repayment difficulties.
  • The collection of student loan repayments for loans granted since 1998 is via income deduction at source once the person granted the loan is earning more than £15,000 a year. The repayments effectively reduce the gross income of the individual by 9 per cent a year.
  • The Student Loans Company wants this data to be made public. At the end of last year its chief executive, Ralph Seymour-Jackson, wrote to the Department for Education and Skills to ask it to change the rules and allow lenders access to this information. The department has noted the request, but has no plans to change the situation
Editors Notes
  1. Student Loan Company annual report 2005.