Student debts Debt solution case study
Summary: Student debts and IVA (Individual Voluntary Arrangement) - this paper addresses the issue of student debts and looks at potential solutions.
Norah is a 3rd year undergraduate who boasts 3 bank accounts - alas all with overdrafts, two credit cards and one store card. Total - £12000 of debt. This is quite apart from the Student Loans Company debt that needs to be repaid once Norah is earning a certain level of income when it will be deducted at source. The banks seem relatively ok with the overdrafts, though the cards continued initially to add interest and payments are a bit sporadic
My debts - who is to blame?
Norah found it all too easy to obtain credit. When she started University all the major banks were keen to sign up her up, providing a variety of incentives. She signed up with three though each one thought they were the only one. The card debts came a little later. During the first summer vacation when the student loan had long since been drained, Norah applied for 2 cards, hoping she'd succeed in getting one but being offered both. There could be a moral argument that the lenders made it too easy - however legally, Norah is the only one responsible for her debt.
Norah discovered that she simply didn't have enough funds to cover living costs and debt repayments. The living costs were priorities so the debts had to take a back seat. However, she wisely contacted each creditor to alert them to her situation. The banks were willing to wait and stopped short of adding charges as long as she didn't exceed a newly agreed overdraft limit. One card agreed to freeze interest initially for 6 months and the other passed on her debt to a debt collection company who were surprisingly helpful in accepting a small monthly payment for the time being. The store card made a fuss, hassled a bit but eventually backed off and agreed no further action.
The dangers of doing nothing
Without the communication, creditors are ready to assume that missed payments means there is a problem that needs dealing with. They could pass the debt on to less helpful debt collection companies, they could go to court for a County Court Judgement or just continue to make life miserable by continuous contact.
Formal debt solutions
Sometimes students enquire about a formal debt solution such as bankruptcy or an IVA. Norah considered these - but knew she would in the foreseeable future be in a position to repay her debt. She believes a relatively well paid job awaits and repayments on debts can begin. Most creditors understand this - and are likely to provide time for the individual circumstances to change.