Request made 25 January 2008
Request
Can you tell me if student loans incurred after 2001 are written off after a period of time if the recipient does not reach the salary threshold, or does the debt increase year on year indefinitely?
Response
New lending is subject to a 25-year maximum term (35 years for Scottish domicile students) because of the changes to the age entitlement for new maintenance loans. Existing customers retain their existing rights for both new and existing borrowing, however. Consequently there are now two kinds of ICR loan:
1 Lending to customers who borrow for the first time in 2006/07 is written off if not repaid within 25 years (35 years for Scottish domicile students). This applies to students who:
- enter higher education in 2006/07 (whether or not following a gap year);
- entered higher education before 2006/07, but elected not to draw down a student loan in previous years; or who
- entered higher education before 2006/07 but were not eligible or entitled to receive a student loan in previous years, but who become eligible for one of the loan products in 2006/07 because for example of the changes to the age rules for maintenance loans, and elect to draw it down.
2 Lending to other customers is written off at age 65. This applies to account holders who:
- obtained a student loan in 2005/06 or in some earlier year, and who are continuing students.
All lending is also written off on death (the account holder's estate must provide the death certificate) or permanent disablement or illness (if the account holder is likely to be permanently unfit for work, the account holder or someone acting for him under Power of Attorney must produce a statement to this effect from the relevant medical authority).
In practice an account holder in these circumstances and whose repayments are collected through the tax system will not as a rule incur a repayment obligation since being unable to work again is likely to have no earnings against which a repayment obligation could be assessed. However, since this account holder may have a source of unearned income, it may still be necessary to apply for the write-off.
It is important to be aware that the repayment terms of the loans are exceedingly generous. Repayments are linked directly to earnings which ensures repayments are affordable for all graduates, regardless of the amount owed and, given the subsidised rate of interest, are likely to be one of the best loan deals that a student will ever get. The Government designed the scheme this way to help those on lower incomes, or at the beginning of their careers. There is no financial penalty attached to those on lower salaries who take longer than others to repay their loans, or indeed those who have to take time off work or suffer unemployment. In addition, outstanding loans are written off when a borrower reaches 65 (this applies to loans taken out before September 2006).
If borrowers can possibly afford to do so and wish to avoid interest payments, they may make early repayment instalments. If, unfortunately, they earn below the threshold and have no other income then it is inevitable that outstanding loan balances are revalued. Otherwise, the value of later loan repayments to the public purse would be seriously eroded.
