BusinessBusiness RecoveryStudent bankruptcy on the rise

Student bankruptcy on the rise

Almost £10m in debts has been written off by the Student Loans Company (SLC) because of a surge in student bankruptcies following the 'softening' of the procedure in April.

Link: Student bankruptcy loophole

Accountancy Age has learned that student bankruptcies have rocketed by 40% since the changes, which reduced the period of bankruptcy from three years to less than twelve months.

However, fears of a stampede into bankruptcy by thousands of students tempted at the prospect of emerging debt free in a matter of months appear to have proved unfounded.

Just 1,040 more SLC customers are now bankrupt since the changes were made, bringing the total up to 3,563 customers.

Based on the assumption that each extra bankrupt student wrote off a SLC debt of £9,100 (the average for a three-year course ending in 2003), the total cost to the taxpayer is £9.5m.

Gareth Kagan, a debt recovery specialist at commercial law firm Bond Pearce, said: ‘After the Enterprise Act, it’s much easier to go into bankruptcy and come out the other end, at least first time round.’

The number of student loans written off through bankruptcy had been heading skywards even before April’s changes, having trebled between 2002 and 2003. The DfES said the latest rises were ‘not exceptional’ and represented just a tiny fraction of students.

The government has used the Higher Education Act to stop the haemorrhaging of cash from the publicly funded SLC due to bankruptcies. The DfES said that, from yesterday, student loans would survive bankruptcy.

Email Brian_Moher@vnu.co.uk.

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