The Government has sold people out over Erudio student loans
Last December I blogged to put people’s minds at ease over the student loan sell-off. Many had worriedly asked me if there would be big changes and I explained that no, there shouldn’t be as the Government had guaranteed no changes to the loan terms and conditions. Well, I was wrong.
With the benefit of hindsight, the promise of no changes to terms and conditions was underwhelming. What was needed was a guarantee that the customs and practice of the Student Loans Company’s (SLC) dealings with borrowers would remain when loans were transferred to Erudio.
The MSE Forum is rammed with former students who are struggling with Erudio, the company that has taken over the student loans. My Twitter feed has been jammed too. Has the Minister David Willetts responded? No. He’s kept schtum.
On Thursday, I covered this in detail on my Radio 5 Consumer Panel and told Erudio exactly what I thought. Now, I want to quickly bash out a few more thoughts.
The basics â€“ what loans have been sold?
We are talking here about loans given to students who started university between 1990 and 1997 â€“ known as "pre-1998 mortgage style student loans".
Unlike today’s loans, where once you go over a threshold you repay in proportion to your earnings, here the threshold is a cliffhanger.
If your income is under ÂŁ28,775 a year you needn’t repay a penny. If it’s more, you usually repay the full whack in 60 equal monthly instalments.
The loan wipes 25 years after you graduate, or when you hit 50, whichever is sooner. So many who started in 1990 and deferred are not that far away from having their loan wiped, which is why continuing deferment now will make a big difference.
Just as crucial is how these loans are repaid. Under the current system, repayments are taken automatically via the payroll, but old-style loan payments are primarily collected via direct debit, just like a normal bank loan (and those who have these loans are required to have a direct debit set up in case they earn over the threshold).
For more info on all the loan types, see my Should I Overpay My Student Loan? guide.
Erudio loans â€“ what’s gone wrong?
The sale of pre-1998 loans to Erudio has caused three major problems which have left some borrowers struggling. A few have even reported sleepless nights over the stress of it.
1. The form is far more invasive.
Under the Student Loans Company’s administration there was a form to "apply for a deferral of repayment", which was two pages long and you filled it in if you didn’t earn enough.
Now there’s an untitled form, admittedly far more clearly laid out, which you fill in effectively as a fact-find for Erudio.
The difference in presentation speaks volumes. The first appears as a ‘fill this in if you want to defer’, the second is a ‘tell us about you and we’ll decide whether you can defer’ – seemingly abrogating the decision away from the borrower to the loan company.
Couple this with the fact it asks for far more detail about employers, income and child support and you can see why this nuanced change in stance has left many concerned and nervous.
2. Erudio is handing over information to credit reference agencies.
The Student Loans Company (SLC) only registered information with credit agencies when someone defaulted – in other words – they didn’t pay when they were supposed to. Erudio, on the other hand, is telling credit reference agencies about all those with outstanding loans that are deferred.
In my view, the sell-off of student loans should not change how the student interacts with the repayments system. But it has. When I asked Erudio why it’s doing this, it told me it’s because in order to get information from credit reference agencies it has to give it to them, and it wants this info so it can "treat each borrower as an individual in a way the SLC never did".
So how does this fit with the Government’s promise of no changes to terms and conditions? Well, technically the SLC did have the ability to do this. It just chose not to for the last 20 years.
But I think this creates a legitimate expectation for people who have these loans that this was a standard operating system, part of the custom and practice of the way the loans work.
As the Financial Ombudsman Service can adjudicate on pre-1998 student loans (not later ones), and one of the factors it looks at is "standard industry practice", it would be interesting to know what’d happen if someone took a complaint to it on this (my assumption is it’d be rejected, but you never know).
It is worth noting though that the inclusion of this data on credit files won’t necessarily be negative for individuals. It’s a balance of the fact that you’re managing credit well versus having more outstanding credit. See the Erudio to credit-score student loans news story for more.
Ultimately though, the problem seems to be that the SLC ran on not much more than an ‘if people say they don’t earn enough, they can defer’ system, while Erudio is far more focused on being meticulous. However, I’d argue that in some ways borrowers had a legitimate expectation that the SLC’s approach would continue.
Erudio says it wants to provide a bespoke system for each borrower. It believes many who deferred in the past shouldn’t have been deferred, they should have been given forbearance (ie, they are eligible to repay, but should in special circumstances be let off doing so) and it wants to look at each case individually.
That sounds all well and good, but people have had the same system for 16 years and now Erudio is interrogating the data in a very different way. That leaves many upset.
3. Payments are being taken when they shouldn’t and without notice.
This one is just pure cock-up territory. People are reporting in their droves that they are having payments taken by direct debit even though they are deferred. It’s worth noting that Erudio itself isn’t doing the deferrals, it’s sub-contracted that to Capita.
This has left some facing overdraft charges or a credit score impact. Erudio says it has fixed the issue for the 50 affected; yet I think that’s an underestimate of the true numbers. I’ve had roughly a dozen people contact me on Twitter alone â€“ I can’t believe a quarter of all the people in the country who’ve had this happen have got in touch with me on Twitter! Normally it’s a fraction of one per cent.
Even though we must partially accept that human error can and will happen, there are systemic issues too. The direct debit regulations say you must inform somebody of the amount of payment you will take and when that payment will be taken in advance, and that clearly hasn’t happened here.
Erudio says it will put things right, but I don’t think it has a clue how this operates.
Overall, Erudio hasn’t been fit for purpose. I’ve had woeful reports of its customer service, and some people haven’t even been able to get through to it. The company clearly under-resourced this and didn’t expect to see this kind of public response.
Staggeringly, when this issue first hit, Erudio didn’t even have a press office â€“ seemingly it hadn’t anticipated any media interest in one of the hottest of political hot potatoes.
The Government must accept responsibility
The Government has mishandled and miscommunicated this. We’ve been nagging it, but have just received generic statements from the Department for Business Innovation and Skills. The minister, David Willetts, hasn’t said anything.
As someone who was relatively sanguine about the sale of the student loan book believing it was only a back-end operation that wouldn’t really change much for those with outstanding loans â€“ I’ve now changed my mind.
Having seen this mess, it would take a lot of persuasion to get me to believe that it’s worth the risk to sell any more of the student loan book.
I’d love your thoughtsâ€¦
Ps. If you’re having problems with Erudio, remember that pre-1998 loans are covered by the Financial Ombudsman Service. So make a formal complaint to the company, and if you don’t feel it has treated you fairly, you can then take it further. For full help see our Financial Ombudsman Service guide.