Student Loans and IVAs
IVAs are designed to assist any person struggling with an overwhelming debt problem, students included.
When debt repayments become too much to afford, often a person will take out further credit in an attempt to consolidate but, as a result, find their debt situation worsening.
This is potentially where an IVA could help.
How IVAs Work
An IVA is a 'new' agreement between you and your creditors that allows you to reduce the amount you have to pay towards your debts each month.
Your debt repayments are replaced with a single monthly contribution, based on affordability, rather than your previous contractual obligation.
Payments are set for a fixed term of normally 60 months and, when the IVA has completed successfully, all the original debts are considered settled.
If the original debts have not been fully repaid through the IVA, the creditors are legally obliged to write-off the outstanding debt.
But what happens when one of the debts is owed to the Student Loan Company?
Student Loan Company Debts
The Student Loan Company are the main provider of student loans in the UK. Student loans are part of the Government's financial support package for students and are designed to assist students whilst in higher education in the UK.
However, many graduates find themselves in an impossible position. They endure years of studying, training and exams in the hope of improving their future earning potential. But they find themselves being buried further under a mountain of personal debt, with no guarantee of the high paying job needed to pay back the loans.
Many graduates are simply unable to earn their way clear of their debt problems and have no option other than bankruptcy as a method of making a clean financial start.
Unfortunately, as explained below, neither bankruptcy or an IVA can be used to write-off Student Loan Company debt, so special consideration should be given to this issue before you decide on what action you wish to take.
Student Loans Background
The introduction of the Enterprise Act in 2004 saw several amendments to the bankruptcy laws which, among other things, reduced the term of a bankruptcy to 12 months.
As a result, more and more students recognised the advantages of declaring themselves bankrupt as a way of wiping their student related debts, before commencing with the rest of their lives.
However, due to the sheer amount of graduates opting for the bankruptcy solution, the Government made amendments to the Act to ensure loans owed to The Student Loan Company were deemed no longer provable in bankruptcy.
Current standing on IVAs and student loans.
The Apprenticeships, Skills and Learning Act 2009 introduced changes to The Teaching and Higher Education Act 1998 specifically to prevent a student loan being discharged by way of an IVA as well as Bankruptcy, and these amendments received Royal Ascent in November 2009.
From November 2009 all Student Loans must be excluded from IVA applications.
The amendment means that as of November 2009, it is no longer possible to include a Student Loans into an IVA, as they must now be treated in exactly the same manner as in Bankruptcy.
Should an IVA applicant have a Student Loan, special provision will be made to ensure, when necessary, those repayments take a priority.
The IVA will still carry on as normal, dealing with the other unsecured debts, however the Student Loan isn't bound by the IVA and repayments to it continue, as normal, until it's has been fully repaid, whenever that might be.
Professional IVA Advice
If you would like to have a chat with a professional IVA adviser please call 0800 856 8569.
There's no charge for a consultation, there's no obligation to act on our advice and your enquiry will be held in the strictest confidence.
Or, alternatively, complete this form and one of our advisers will call you at your preferred time.
