It's good news for graduates – the credit reference agencies are not allowed access to student loan debt information. It can be difficult for people to get credit when they already have a lot of debt, and with good reason you could say, however, cash strapped graduates who have managed to finally get a decent job don't have to worry about their student loan debt holding them back, at least not for the moment.
Experian, Equifax or Callcredit are the big credit reference agencies that lenders use most to find out about people's financial histories. They know pretty much everything – when you miss payments, when you make payments, when you apply for a credit card or loan, whether it is refused or accepted – you name it, they know it. They also glean more information from public records such as the electoral role and the public register of court actions. Using the wealth of information available to them, they analyse your suitability as a borrower and provide the lender with all the data needed so they can decide whether to lend to you, and how much they are prepared to lend. So, the credit industry is understandably unhappy about being kept out of the loop on student debt.
The industry has appealed to the government to change the rules, but the government is not planning to make any changes because as far as it is concerned, the students owe the taxpayer, not a commercial business, so the credit agencies have no right to the information.
When the student loan system was first introduced, the repayment system was like a mortgage – once the graduate was earning the national average, they would start making monthly direct debit payments until the debt was paid off. The average debt was around £2,750, and as many as 59,000 of those graduates have still yet to commence repayments.
The student loan system changed in autumn 1998, the difference being that instead of taking the money from graduate's bank accounts via direct debit, the money is taken straight out of their wages. It leaves the pay packet at the same as time as the tax and N.I. This method has gone a lot more smoothly when it comes to getting the repayments, and still continues today.
The lending industry has a strong argument based on the fact that they are lending money to graduates without having a full picture of their financial situation. The post-1998 loans work by taking 9% of the graduate's salary, so that's a big financial responsibility. If the graduate gives the lender their yearly salary, that will not reflect how much they are actually getting in the bank. Top-up fees resulted in students building up even larger debts than before, so the loan repayments could feasibly go on for a number of years.
A number of organisations support the credit industry's view:
The Association of Consumer Credit Counselling Service said “Knowing whether a young person has a student loan and whether it is being paid back, is useful.”
The Citizens Advice Bureau is worried that graduates are able to take advantage of too many tempting offers like credit cards and loans, and argues that if the lenders could see that debt, they would be able to make a more accurate estimate on how much more debt they could handle, if any.
Despite the pressure from all angles, the Department for Education and Skills is holding firm and is not currently considering allowing credit agencies access to the Student Loan Company's records.
Graduates should be careful not to take on too much debt – and consider their ability to meet the repayments before taking out a loan or making a large credit card purchase.
Michael Challiner writes for Brokers Online, a large Uk finance portal who specilise in Life Insurance ( http://www.life-assurance-bureau.co.uk ), Loans ( http://www.life-assurance-bureau.co.uk/loans/ )and Mortgages ( http://www.life-assurance-bureau.co.uk/mortgages/ ).
