What happens to the Student Loan?

The student loan and bankruptcy is an interesting topic. Bankruptcy is one way of dealing with debts we cannot afford to repay, however, since 1 September 2004 a loophole was closed making the student loan non-provable in bankruptcy. Essentially this means that any outstanding student loan cannot be claimed in bankruptcy and it remains the responsibility of the former student to repay.

Therefore if you are a graduate or a student and are considering bankruptcy it is essential to take advice as you may still end up with debts even after bankruptcy.

There are two types of student loan. The first type was available to students who commenced their courses between September 1990 and August 1998 and is characterised by the direct debit method of repayment to the student loans company. It is known as "mortgage style loan". The second type was available to students commencing in September 1998 onwards and is commonly referred to as "income contingent loan". It is characterised by repayment through the tax system.

Mortgage style loans have always been non-provable in bankruptcy, however, for a period of time the new type of loan wasn't. As a result many students and graduates in England and Wales used bankruptcy to wipe their student loans until the Higher Education Act 2004 was used to close the loophole.

Now all student loans are repayable even after bankruptcy.