Personal Finance. Information on student loans excluded from credit histories
These days, if you apply for any form of loan or credit, the finance industry will inevitably scrutinise your credit history. You’ll hardly have to tell them anything as within a fraction of a second, their computers will lock into your credit file held by one of the big three credit agencies; Equifax, Experian and Callcredit. And you’d be amazed what they know about your finances!
As far as the finance industry is concerned, the more information they can get about you, the better. Their computers then analyse all this information and statistically assess your application.
For years now banks, building societies and other financial institutions have been sending information about your finances to the credit agencies. They know all about all the credit applications you’ve made, the times you’ve missed or been late paying a loan, mortgage or credit card, the balances on your loans and credit cards, whether you pay off the minimum each month and even your credit limits. They’ve also accumulated lots of other information about you culled from the voters’ roll and the public register of court actions where county court judgements are recorded.
Yet despite this mass of information, there is one notable omission. Despite representations to the government, information on any student loans that you may have is not available to the credit agencies. This is because student loans were set up as a debt to the taxpayer, not a commercial business.
Before September 1998, student loans were repaid by mortgage style direct debits to collect loan repayments once the graduate started earning over £15,000. But more than 59,000 of these pre 1998 graduates are understood to be in arrears on these repayments to the tune, on average, of about £2,750 per graduate.
After September 1998, the system of collecting student loans changed to a much more efficient method which avoids the possibility of bad debts. Repayments are now deducted direct from salaries by employers along with income tax and national insurance.
The credit industry argues that it needs information on student loans as they can represent a significant strain on the graduates’ finances – especially as the loans are repaid at the rate of 9% of the graduates’ income in excess of £15,000. And with the introduction of top-up fees, the average student loan is now much bigger. Therefore, to fully assess their financial situation they need this information. This view is supported by a spokesperson from the Finance and Leasing Association Consumer Credit Counselling Service who said, “Knowing whether a young person has a student loan and whether it is being paid back is useful.”
Yet despite the clamour to share the information, the Department for Education and Skills remains steadfast in its decision not to allow the Student Loan Company to share its information with the commercial sector.
Even the Citizens Advice Bureau wants this decision changed arguing that the credit industry needs the student loan information to help ensure that graduates are not taking on so much debt that they can’t afford to maintain repayments.
But for now at least, the situation remains. Credit agencies cannot obtain any history about student loans.
