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Students: Insolvency

Volume 472: debated on Thursday 21 February 2008

To ask the Secretary of State for Innovation, Universities and Skills (1) how many students have entered into individual voluntary arrangements since their introduction; (161930)

(2) how many students (a) were declared bankrupt in each of the last 15 years and (b) took out individual voluntary arrangements since their introduction.

The Government’s student finance package is designed to ensure that finance should not be a barrier to a higher education course. Student loans from the Government are not like commercial loans: interest is paid at the rate of inflation, so in real terms students only pay back what they borrowed. For income contingent loans available since 1998, repayment is linked to earnings and borrowers only repay if their earnings are over £15,000; from April 2012 they will be able to take up to five years’ ‘Repayment Holiday’ and those taking out a student loan from 2006 have their debt cancelled after 25 years.

During the passage of the Enterprise Act in 2002 there was a growing awareness about student loan borrowers declaring themselves bankrupt. There was a rise in the number of bankruptcies/Individual Voluntary Agreements (IVAs) notified in 2003. In addition, one of the effects of the Enterprise Act itself was to reduce the period of discharge from bankruptcy from three years to one. Provisions were therefore included in the Higher Education Act 2004 to prevent student loans being written off on bankruptcy. Currently student loans are not exempt from IVAs.

The increase in student loan borrowers with bankruptcies and IVAs should be seen in the context of the increases in the general population. Figures from the Insolvency Service show that between 2002 and 2006 the number of individual bankruptcies in England and Wales more than doubled; the number of IVAs increased seven-fold.

Until 2004 IVAs and bankruptcies were not recorded separately in SLC data. After the change in legislation, only IVAs are recorded, as student loans are excluded from bankruptcy debts and are not written off on discharge from bankruptcy.

Available data are shown in the tables.

English domiciled borrowers with publicly-owned student loans who notified the Student Loans Company (SLC) of their bankruptcy or Individual Voluntary Agreement (IVA)1—Calendar year of bankruptcy or IVA 1997 to 2004

Calendar year

Borrowers with bankruptcy or IVA

Percentage of all borrowers UK2

1997

70

n/a

1998

90

n/a

1999

120

n/a

2000

130

0.017

2001

230

0.023

2002

270

0.027

2003

800

0.057

2004

1,170

0.072

n/a = not available

1 Bankruptcies and IVAs are not separately identified in the data. There may be delays between borrowers becoming bankrupt/taking an IVA and notifying SLC, therefore figures can increase overtime, particularly for the most recent years. Figures are rounded to the nearest 10.

2 UK Borrowers with bankruptcy or IVA in the calendar year as a percentage of all UK borrowers in the March of each year.

Source:

Student Loans Company

English domiciled borrowers with publicly-owned student loans who notified the Student Loans Company (SLC) of their Individual Voluntary Agreement (IVA) 1— Calendar year of IVA 2005 and 2006

Calendar year

Borrowers with IVAs

Percentage of all borrowers England2

20053

820

0.039

20063

1,060

0.047

1 There may be delays between borrowers taking IVAs and notifying SLC, therefore figures can increase over time, particularly for the most recent years. Figures are rounded to the nearest 10.

2 English domiciled borrowers with bankruptcy or IVA in the calendar year as a percentage of all English domiciled borrowers in the March of each year.

3 provisional

Source:

Student Loans Company

Early indications suggest the numbers of IVAs are reducing after 2006.