IVAs are designed to assist any person struggling with an overwhelming debt problem, students included.
But what happens when one of the debts is owed to the Student Loan Company?
When debt repayments become too difficult to afford, often a person will take out further credit to cover the repayments and, as a result, find their debt situation worsening.
This is potentially where an Individual Voluntary Arrangement (IVA) could help.
An IVA is a ‘new’ agreement with your existing creditors, and this is how it works.
Your multiple monthly debt repayments are replaced with a single monthly contribution into the IVA fund. The contributions to the IVA fund are based on affordability and continue for the duration of the IVA which is normally a fixed term of 60 months.
When the IVA is completed successfully, all the original debts will be considered settled. If the original debts have not been fully repaid through the IVA, the creditors concerned will be required to write off the remainder.
One such debt could be to The Student Loan Company Ltd, for they are the main provider of student loans. 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. Years of studying, training and exams, endured in the hope of improving their future earning potential. All the while finding themselves being buried further under a mountain of personal debt, and with no guarantee of a high paying job at the end of it all to pay back the loans.
Many graduates are simply unable to earn their way clear of their debt problems, and have to consider the route of Bankruptcy as a method of making a clean financial start.
However, 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.
After the introduction of the Enterprise Act in 2004, (where several amendments were made to the bankruptcy laws, which among other things, reduced the term of a bankruptcy to 12 months.) more and more students recognised the advantages of declaring themselves bankrupt to enable themselves to ‘clean the financial slate’ before commencing with the rest of their lives.
However, due to the sheer amount of graduates opting for the bankruptcy solution, the government made further changes and loans owed to The Student Loan Company were deemed no longer a provable debt in a bankruptcy.
Latest Standing on IVAs and Student loans.
The Apprenticeships, Skills and Learning Act 2009 brought in amendments 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 allow to repayments of the loan take priority.
The IVA will still carry on as normal, however the Student Loan is not bound by the IVA and repayments to it will continue until the Student Loan has been fully repaid, whenever that might be.
For more information on IVAs, download our free guide “The Truth about IVAs”
Call free on 0800 088 7503 now because one of our IVA advisers is waiting to answer your questions.
Related Articles: