Debt Advice - Student_debt

THE UK INSOLVENCY HELPLINE STUDENT DEBT

F A C T S H E E T N O 30

INTRODUCTION According to recent figures the average graduate debt has risen by over £4,000 since 2003 to £12,180. Debt levels vary considerably depending on the length of your course, where you are studying and the level of financial support received. As student grants have now been abolished and charges are made for tuition fees, many students now reply on student loans as their main source of income. They are also increasingly relying in various forms of credit in order to survive an average three year course.

SOURCES OF FINANCIAL HELP The information below gives a brief summary of the sources of financial help available. More detailed information can be obtained from the Local Education Authority (LEA), Department for Education and Skills (DFES) or National Union of Students (NUS). You may have to pay a contribution towards your tuition fees. For 2004/05, the most you will have to pay towards your fees is £1,550. Phone us for advice.

LOCAL EDUCATION AUTHORITY (LEA) TUITION FEES

The amount you will get will depend on your income and that of your family unless you are classed as an “independent student”. If you are an independent student and you have a partner their income will be assessed.

DISABLED STUDENTS ALLOWANCES (DSA) If you are a student with disabilities you may be eligible for a Disabled Students Allowance which can help with costs you incur, in attending your course. These are available to full-time and part-time students with disabilities. Unlike a student loan, DSA assistance does not have to be repaid. Talk to your LEA to see if you can claim.

CARE LEAVERS GRANT If you are a student who has left care you may be able to claim a Care Leavers Grant to help with your accommodation costs in the long (usually summer) vacation. This can be worth up to £100 a week during the long vacation. Talk to your LEA to see if you can claim.

CHILDCARE GRANT If you have childcare costs during term time or vacations you may be able to claim a Childcare Grant. The amount you get depends on your income and that of your dependants. Talk to your LEA to see if you can claim.

You may be able to get help from your LEA towards your tuition fees by applying to the LEA where you live prior to starting your course.

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LONE PARENTS GRANT If you are a student and a lone parent you may be able to claim a Lone Parent Grant to supplement your income. The amount you are awarded is dependent on your income. Talk to your LEA to see if you can claim.

Apply to the student services department of your college or university.

CAREER DEVELOPMENT LOANS

If you have dependant children you may be able to claim a Parents Learning Allowance for extra help with course related costs. The amount you get is dependent on your income and that of your children.

If you cannot get help through other sources then you may be able to get a Career Development Loan (CDL). A CDL can be used to fund up to two years vocational training or education. CDL’s are bank loans offered in partnership between the Department for Education & Skills (DFES) and three high street banks (Barclays Bank, The Co-operative Bank and The Royal Bank of Scotland). To find out more see the “Further Information & Help” section at the end of this factsheet.

STUDENT LOANS

TRUSTS & CHARITIES

Student loans are paid to students by the Student Loans Company (SLC) for help with living costs while you are at college/university. They are normally paid in three instalments throughout the year. You should apply to your local education authority (LEA). You will need to apply for each year of your course. Twenty-five percent of the loan is based on your income and that of your family. In 2004/05 the loan can also be up to £5,050 for those in London and £4,095 outside London.

There are a number of trusts and charities available who may provide financial assistance to students. Many of these relate to students studying a particular subject or having links to a particular geographical area. If you want to find out about trusts and charities look at the “Further Information & Help” section at the end of this factsheet.

PARENTS LEARNING ALLOWANCE

For further information on paying back your student loan see the main section on Student Loans.

HIGHER EDUCATION GRANT This is new for 2004 and is worth up to £1,000 per year. How much you get will depend on your income and that of your household. If your household income is around £15,000 you will receive a grant worth £1,000. Partial grants will also be available for students with a household income of between £15,000 and around £21,000. Grants are payable in three instalments – one at the start of each term.

NHS BURSARIES If you are accepted into a NHS funded degree or diploma course, you are eligible for an NHS bursary. Students in receipt of these bursaries will have their fees paid. These bursaries do not have to be repaid.

BENEFITS The majority of students do not qualify for means tested benefits. If you are a student with a disability or a single parent you may qualify for some benefits. Contact your student welfare department, the Department for Works & Pensions, (DWP) or  phone us for advice.

HELP AVAILABLE FROM COLLEGE COUNCIL TAX ACCESS TO LEARNING FUND This is available through your college to provide extra financial support if you are on a low income and need extra financial support. Payments will usually be in the form of grants which do not have to be paid back although occasionally payments will be given as short-term loans.

If you live in a hall of residence or shared house with only students living there, you will be exempt from paying council tax. If you live with other non-students you may be liable for council tax depending upon your circumstances. Check with your Council Tax Department or  phone us for advice.

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EXPENSES WHILST YOU ARE STUDYING Whilst being a student budgeting is one of the most important skills you can use. It may be your first time away from home and the first time you have to be completely responsible for all your own finances. It is a good idea to work out a budget to include all your income and expenditure while you are studying. Student welfare advisors will be able to give an estimate of typical costs. The NUS also produce a useful set of leaflets including guidelines for average student expenditure. When working out a budget you should be clear what period the budget covers. Budgets can be worked out monthly or weekly, or you may prefer to do a budget for each term or annually, with a separate budget for the long vacation.  phone us for advice or contact the NUS directly. Their details are at the end of the factsheet.

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The interest charged on your loan is linked to the rate of inflation and adjusted in line with the Retail Price Index. Interest is calculated daily at the appropriate rate from the day your loan starts and is added to your account at the end of each month.

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The SLC will write to you in the February after graduation advising you when to start making repayments. They will also give you the opportunity to apply to defer repayments. Unless the SLC agrees to defer repayments, they will start collecting repayments from you in the April of that year. Your repayments can be deferred if your gross income (before tax and National Insurance) is below 85% of national average earnings. You must ask for a new deferral each year. If you are late in applying, you may be asked to start making payments.

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Repayments are usually made over 5 years by monthly instalments as a direct debit from your bank account. You will have to agree to this when signing the loan agreement. It is therefore important to keep the SLC informed of your current address and to contact them if you change bank accounts. It is also important to inform the SLC if you leave your course. A statement is sent out each year by the SLC showing the level of monthly instalments, the interest rate and the total interest added as well as the current balance. There are options to repay the loan earlier or to make top up payments.

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If you do not defer payments and/or a payment is missed for whatever reason the SLC will begin recovery action. The agreement is enforceable by taking you to county court or can be passed to debt collectors first. It is important to contact the SLC as soon as possible if you have missed a payment or forgotten to defer in order to avoid court action. The Student Loans Company does not register defaults or missed payments on your credit reference file but if action is taken through the county court and you receive a county court judgment then this will appear on your credit reference file. See the section on credit reference files or  phone us for advice.

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If you are a disabled there are special repayment and deferment arrangements. If you can show as a result of your disability that you will be permanently disabled your loan will be cancelled. If you are a disabled borrower and your income is above the deferment threshold you can extend your repayments over ten years.

CHOOSING A BANK ACCOUNT – THINGS TO CONSIDER Most of the major banks offer special accounts for students. Things to consider when choosing a bank account are: •

The amount of any interest-free overdraft you can have

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The charges and interest on authorised and unauthorised overdrafts and loans

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How long you can keep using the same account after graduation. Many banks have the option to move to a graduate account with preferential rates instead, while some may insist on you turning your overdraft into a loan.

Warning: check out what the bank will charge if you go over your overdraft limit. These charges can often be very high.

STUDENT LOANS Old “Mortgage Style” System •

Student loans were introduced in 1990 to complement the mandatory LEA grant. These loans are regulated by the Consumer Credit Act and run by the Student Loans Company (SLC).

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work liability for the loan will be cancelled.

STUDENT LOANS New “Income-Contingent” Loans •

These were introduced in September 1998 to replace the mortgage style loans. The amount of the loan you will receive depends on your year of study, the type of course and the location of your college/university. If you started your course on the mortgage style loan you are likely to continue on the old system. Income Contingent loans are not regulated by the Consumer Credit Act.

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Interest is linked to the rate of inflation and accrues daily from the date you receive your first loan instalment.

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Repayments start from the April after you graduate or leave your course if your gross income exceeds the income threshold. The income threshold is £15,000 or £1,250 per month or £288 per week. The amount that you pay is 9% of the difference between your income and the income threshold. EXAMPLE SALARY

= £17,000

THRESHOLD

= £15,000

DIFFERENCE

= £2,000

per annum

9% OF £2,000 = 9/100 X 2,000 = £180 The amount to repay is £180 per annum or £15 per month.

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From April 2005 the starting point at which former students begin to repay their loans will increase from £10,000 to £15,000. This will apply to all students with income contingent loans including those currently in repayment. You will not have to start making any repayments on your loan until you are earning over £15,000 a year. This means that after April 2005 someone earning £20,000 will pay just £8.65 per week no matter what they owe, against £17.31 per week under the current scheme.

DEBTS TO UNIVERSITY/COLLEGE You may owe money to your educational establishment for a variety of reasons. Debts may include accommodation, rent, tuition fees, hardship loans or library fines. The consequences for nonpayment vary depending on the type of debt. Different colleges/universities may have different policies on how they will treat the debts depending on the circumstances. Many universities/colleges will consider withholding qualifications or prevent you going on to further studies if you owe money to the university. These policies could be considered unfair if the money is not owed for fees. You may want to dispute this if you are unable to come to a repayment arrangement you are happy with. Student welfare officers should be the first point of contact.  Phone us if you need further advice.

ACCOMMODATION •

Your repayments will usually be collected by the Inland Revenue via your employer through the Pay As You Earn system (PAYE). If you are self employed you will repay the Inland Revenue through self-assessment tax returns.

Most universities/colleges provide some kind of accommodation for students. The tenancy is often only for one academic year excluding the summer vacation. This payment should be treated as a priority. Many universities/colleges may be reluctant to evict you for non-payment but they may refuse to offer you accommodation in later years.

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If you are outside the UK tax system you will have to repay the SLC directly.

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Repayments will not be over a fixed period as the level of your repayments will rise or fall directly in line with your income. This means that the length of time over which the loan will be repaid will depend on your income after graduation and on the total amount you borrowed.

This means that you need to make an arrangement to pay back any outstanding debts at a rate you can afford to avoid this happening.

Disability benefits are not counted as income when assessing your threshold income. In some circumstances, if you are permanently unfit for

If the Local Education Authority (LEA) assess that you need to make a contribution towards your tuition fees and you do not pay then the debt you owe will be

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TUITION FEES

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a debt to the university and not the LEA. Difficulties often occur when the LEA assessment is delayed or if you leave the course or transfer to another university/college. If tuition fees are owed to your university or college you may not be allowed to progress to your next year of study or your degree certificate could be withheld if you are in your final year  phone us for advice.

CREDIT DEBTS Credit debts can include bank loans, overdrafts, credit cards etc. If you are still a student you may have access to an interest free overdraft. You may be able to negotiate extending the overdraft with the bank or make an arrangement to pay back the overdraft once you have graduated. If you have other credit debts which are not specifically student related you may have to come to an arrangement to pay what you can afford. We suggest you use our information pack “Dealing with your Debts” to work out a personal budget and make offers to your creditors. If you have a student account, contact the Account Manager at your bank, your Student Welfare Officer or  phone us for advice.

STUDENT LOANS & BANKRUPTCY

your utility supplier with up-to-date meter readings whenever you move into or leave a property. If you have a utility bill you cannot pay you should contact your supplier straight away to see if you can come to an arrangement. You should treat gas and electric debts as a priority debt as your supplier can install a pre-payment meter or disconnect your supply if you do not pay. You cannot be cut off if you fall behind with water bills although your water company can take court action against you if you do not keep up with your payments.  Phone us for advice.

CREDIT REFERENCE FILES The majority of creditors have structured repayment arrangements for student related debt once you start earning. As long as the arrangement is kept to there should not be a problem with your credit rating. If you have credit agreements that are not specific to students i.e. credit cards or store cards, then defaulting on these agreements will affect your credit rating and ability to obtain credit in the future. We have a factsheet on credit reference agencies we can send you or  phone us for advice.

FURTHER INFORMATION & HELP

Until recently you could include your student loans in bankruptcy along with your other debts. The law has recently changed so that from 1 September 2004 (Income Contingent Loans – post 1998) or 1 July 2004 (Mortgage Style Loans 1990-1998) student loans are no longer provable in bankruptcy. This means they are not written off with your other debts at the end of the bankruptcy.

Department for Education & Skills (Dfes) Tel: 0870 000 2288 www.dfes.gov.uk

If you now choose bankruptcy as an option for dealing with your credit debts you will not be able to include your student loans in the bankruptcy. You will still have to pay back your student loans in the usual way.

Local Education Authority (LEA) You may be able to get financial assistance towards your tuition fees (and in some cases other assistance) from your LEA. You need to apply to the LEA where you live prior to starting your course.

UTILITY DEBTS Many students have problems with utility debts especially if you share bills with other students in a shared house. To avoid these problems it is a good idea to ask for the bill to be put in joint names so that each person named on the bill is jointly responsible. You should also be careful only to pay for the fuel used and not fuel used by previous or future tenants. Contact

At College/University Most colleges/universities have student welfare officers that can provide you with up-to-date information and advice about any financial issues whilst you are a student.

Student Loans Company (SLC) Student Loans Company Ltd 100 Bothwell Street Glasgow G2 7JD Tel 0800 40 50 10 www.slc.co.uk National Union of Students (NUS) Nelson Mandela House

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461 Holloway Road London N7 6LJ Tel 0871 221 8221 www.nusonline.co.uk

Council for International Education 7-17 St Albans Place London N1 1NX Tel: 020 7288 4330 www.ukcosa.org.uk

NHS Students The NHS Student Grants Unit 22 Plymouth Road Blackpool FY3 7JS Tel: 01253 655 655 www.nhscareers.nhs.uk Trainee Teachers Training And Development Agency For Schools Teaching Information Line 0845 6000 991 Welsh Teaching Information Line 0845 6000 992 www.tda.gov.uk The National Bureau for Students with Disabilities (SKILL) Chapter House 18-20 Crucifix Lane London SE1 3JW Tel: 020 7450 0620 Fax 020 7450 0650 Information Service: 0800 328 5050 Minicom: 0800 068 2422 Email skill@skill org.uk www.skill.org.uk

Education Grants Advisory Service (EGAS) The Educational Grants Advisory Service is an independent advice agency for people who want to get funding for further or higher education. It is mainly concerned with helping students who are not eligible for statutory funding. To apply you must first send a stamped addressed envelope to: EGAS 501-505 Kingsland Road Dalston London E8 4AU Information Line: Tel: 020 7254 6251 www.egas-online.org Career Development Loans Career Development Loan Information Line Tel: 0800 585 505 www.lifelonglearning.co.uk

OTHER USEFUL WEBSITES Funderfinder www.funderfinder.org.uk Support for Learning www.support4learning.co.uk Scholarship Search www.scholarship-search.org.uk

REMEMBER: You can always contact us for advice about any difficulty you have in dealing with your debts.

Freephone: 0800 074 6918 Website: www.insolvencyhelpline.org © Copyright Money Advice Trust (updated October 2005) Whilst we endeavour to keep our factsheets as up to date as possible, The UK Insolvency Helpline cannot be held responsible for changes in legislation or for developments in case law since this edition of the factsheet was issued.

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