Worried former graduates whose loans are owned by Erudio have taken to our forum to raise questions about when their loans will be wiped, whether they can pay them off early, and the impact this will have on their credit files. We answer these questions below.
Firstly, it's worth explaining the scenarios where pre-1998 mortgage-style graduates will have their loans written off (see our Should I repay my student loan? guide for how the other loan systems work).
When is my loan automatically written off?
Under The Education (Student Loans) Regulations 1998, lenders will cancel your liability to repay if you:
- Can show the lender you get a disability-related benefit and because of this disability you're permanently unfit for work.
- Are not behind on any repayments under any agreement for a student loan and were under the age of 40 when your last agreement for a student loan was made and you reach the age of 50, or when the last agreement for a student loan has been outstanding for no less than 25 years, whichever is the sooner.
- Are not behind on any repayments under any agreement for a student loan and were aged 40 or older when your last agreement for a student loan was made and you reach the age of 60.
Deferment, where you don't repay your loan because you earn under the threshold to do so, doesn't count as being behind in the above points.
In these scenarios, your loan is automatically written off and you do not need do anything further. If your account is in arrears and you reach the age-related cancellation threshold, your loan will not be cancelled until you clear your arrears.
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My loan has been automatically written off. Will it be detailed on my credit file?
With other types of loan, your credit file is usually updated to state that a loan's been 'Paid in Full' showing that you've fulfilled your contractual duties, which should benefit your credit score.
While Erudio says it is legally allowed to report to credit reference agencies (CRA) at "anytime, subject to the terms and conditions laid out in individual loan agreements", it's not currently giving information about your student loan, including details about those in deferment, to credit reference agencies as it's carrying out remedial work after discovering a historic paperwork issue.
It will only start reporting information to credit reference firms after it's concluded the remedial work, although it couldn't give us a time frame of when this is likely to happen.
When it does start listing the information, it says that for loan agreements signed before or during 1997, it has permission to report details of the loan to CRAs every month, including if a customer's in deferment. For loan agreements signed during or after 1998 it will not be listing accounts in deferment unless the customer agrees that it may do so.
It does however add that information will not be placed retrospectively to credit files, so if you pay off your loan now, this information won't be added to credit files at a later stage.
This means if your loan is automatically written off now, there will be no details of this on your credit file, and neither will your loan be detailed there anyway as the Student Loans Company (SLC), which owned the loans before Erudio, did not report information to CRAs.
Can I settle my loan before it's written off?
Under the student loans regulations you can request to pay a 'full' settlement, where you pay off the entire account earlier than contracted, or you can make a 'partial' settlement, where you agree for all the debt to be wiped, but you only repay a partial sum yourself.
Does Erudio accept settlement offers?
Erudio says it accepts full settlement offers upon customers confirming both they can afford them and the source of funds to pay them. Each partial settlement offer is assessed on a case-by-case basis.
These criteria apply to customers who are actively repaying their loans, those in arrears, and those in deferment who don't repay because they earn under the £28,828/year threshold.
Erudio says it considers offers using the Consumer Credit Sourcebook for credit-related regulated activities, which states that: "A firm must give due consideration to a reasonable offer of repayment made by the customer or the customer's representative."
However, when pushed, it wouldn't tell us what it considers to be a 'reasonable offer of repayment', only saying it depends on a customer's individual circumstances.
Under the rules listed above, if a settlement offer's rejected, Erudio must include a clear explanation as to why, and it cannot intimidate customers into increasing their offers.
If an offer's accepted, Erudio must communicate formally that the offer and payment has been accepted. Your account will then be closed.
How will a 'partial' settlement affect my credit rating?
Usually, if your partial settlement is accepted, the lender can put a flag next to your credit file saying the loan has been partially settled.
Erudio says once it starts relaying information to credit agencies, it will report partial settlements as '0P', with the P standing for 'Partial', but different credit reference agencies may use different terminology on their own credit reports.
For instance, Experian and Equifax show partial settlements as 'satisfied', although a company can add a flag to the report to say, for instance, that the payment has been received in full, but it would not fully clear the balance.
However, whichever way a partial settlement is logged on your credit file, both Experian and Equifax say it represents some sort of "bad debt", and that this won't help to improve your credit rating.
But they do add that a partial settlement is less harmful to your credit file than a number of outstanding debts, and of course, all lenders have their own criteria for customers to meet in order to be offered credit.
How will a 'full' settlement offer affect my credit rating?
Erudio says when it starts passing information to credit agencies, it will report full settlements as 'Paid in Full' which will be marked with a '0'.
But again, different credit reference agencies may have their own terminology for this. Experian says it records full settlements on its reports as 'settled', while Equifax says they would show as 'satisfied paid in full'.
In terms of how this affects your credit rating and ability to take out credit in future, both Experian and Equifax say a fully settled account could be a boon, especially if it's been repaid on time each month as it demonstrates responsibility in repaying any debt.
Should I make a settlement offer?
Ultimately, whether you make a settlement offer is up to you and whether or not you can afford it. See our Should I repay my student loans? guide to find out whether it's better to save or clear debt.