Students warned off bankruptcy loophole

Students are being warned against declaring bankruptcy as a means to write off their student loans.

Six hundred graduates have declared bankruptcy since it transpired in January that student loans are included in the list of debts that are written off on declaring bankruptcy.

The cost of loans lost through the loophole is thought to be in excess of ?2.4m - all picked up by the taxpayer.

Derek Jones, an insolvency expert from Gloucestershire law firm, Rickerbys, speaking for R3, the insolvency experts' professional body, said: "Whilst a person is bankrupt there are over 200 things which they are as a matter of law prevented from doing.

"A bankrupt student will find that they will have difficulty getting a mortgage, hire purchase and overdrafts, as they cannot incur credit of more than ?250 during the course of the bankruptcy without notifying their lender of their bankrupt status."

Bankrupt people also have all their bank accounts frozen and any life insurance policy taken out will be seized. Their credit reference will be permanently damaged.

"The cost of obtaining credit in the future will be an expensive price to pay for the short-lived relief of avoiding the student loan," added Mr Jones.

Students who declare themselves bankrupt may find they have to pay off their debts anyway, and at a higher rate of interest than their student loans. The period in which a person can be declared bankrupt is currently three years.

The NUS president, Mandy Telford, said: "Students and graduates need to seek proper professional advice before considering such a bold move. The penalties for bankruptcy are far-reaching and long-term. NUS does not believe many students embarked on their course with a desire to end up bankrupt."



She added: "Student hardship is fast spiraling out of control thanks to the catastrophic policies introduced by this government. The university experience offers many things, one thing it should not offer is a fast track to bankruptcy."

The higher education bill, due to come into force next year, will close the loophole and make student loans exempt from bankruptcy laws.