Student Loans Overcharging Graduates

Figures show the Student Loans Company has been forced to pay back more than £107million since the late 90s after taking cash from graduates who have already cleared their debts.

Repayments leapt by more than 15 per cent last year alone to some £22m, it was revealed.

A total of 40,050 graduates overpaid in the tax year ending in April 2010, compared with just 117 a decade earlier.

It is feared the scale of overpayments will soar in coming years when the cap on student tuition fees almost triples to £9,000 forcing students to borrow considerably more money.

Students criticised the system today, saying it often took months to reclaim their money.

Nicholas Lativy, a 26-year-old software engineer, told the BBC that he overpaid by £4,000 but had to make five phone calls and fax three separate sets of documents before his repayment was approved.

“The amount that has been overpaid demonstrates the system is broken,” he said.

“I had to take hours at a time out of work… every time you phoned up you’d get a different person on the line and it took a long time to explain the situation to them again and again.

“It was very frustrating and quite stressful.”

Student loan (NYSE: STU – news) repayments are collected through the UK tax system.

The SLC receives information about customer repayments once a year after employers make their annual tax returns. This results in a time lag and means some graduates overpay if the debt is wiped out during the tax year, a spokesman said.

According to figures released after a Freedom of Information request, 40,050 customers made £22.3m worth of overpayments last year. This compares with 36,617 graduates making £18.9m of overpayments in 2008/9 and 25,434 graduates overpaying by £15.9m in 2007/8.

In 2000/1 just £14,619 worth of overpayments were made by 117 students.

The total amount repaid by the SLC since 1998/99 now stands at £107.6m, figures show.

One graduate alone was overcharged by a total of £96,000 before having the money refunded.

But the SLC insisted it was a rare case and large overpayments were only usually made after the award of a huge bonus on top of a graduate’s usual monthly salary.

Officials also pointed out that all repayments included interest.

Separate figures also obtained by Radio 4’s You and Yours shows that the number of complaints received by the SLC almost doubled last year to 2,810.

One graduate who approached the programme said: “The whole system is in disarray.”

The SLC has since made changes to the system, allowing students approaching the end of repayments to switch to direct debit, giving them more control over when payments are stopped.

A spokesman said: “SLC has taken positive action to prevent over-repayments.

“Since introducing the direct debit scheme in 2009, we have contacted 106,000 customers to advise them that the direct debit option is available to them. 34,000 customers have either taken up the direct debit scheme or paid their loans off in full.”

Part Time Study Financial Help

Show me the money…

Well it’s not quite as straightforward as that. First you need to find out if you qualify as a part-time student. In order to be classed as part-time and receive funding you need to meet a number of specific criteria.

What’s the difference between a full-time and a part-time course?
A person who is classed as a full-time student is not someone who makes it to every one of their lectures! The definition of a full-time course is actually any mode of study whereby the annual total of units equals 120 credits. And, if you’re studying a course that has less than 120 credits per year then you would be classed as a part-time student and as such are entitled to help with your course costs and fees.

What am I entitled to?

Part-time HE students are entitled to two main types of grant support. You will find other forms of funding and we’ll come to those in a minute but for now let’s talk about the principal grants you could receive.

Fee grants do exactly what they say; they cover the cost of your tuition fees and are paid directly to your university.

Course grants are paid directly into your bank account and can be used for books, equipment, and travel expenses – basically, any course related costs.

Not everyone is entitled to the same amount of grant support. There are several factors that can decide exactly what type and how much support you will get.

Intensity: This is the percentage rating of your course compared with its full-time equivalent. So, if you study a part-time course for 60 credits and the full-time equivalent for 120 credits, the intensity is 50%.

Household Income: How much you earn will affect the grant amount you will be entitled to. Generally the more you earn the less you get. Also taken into consideration are your partner’s earnings and any dependent children you have living with you.

Benefits: If you are receiving Income Support, Housing Benefit, Council Tax Benefit or Income-Based Jobseeker’s Allowance you could automatically qualify for the full grant entitlement.

Disability: If you consider yourself to have a disability as defined under the Disability Discrimination Act then you might be entitled to more financial help then you think. The rules surrounding Intensity and Household Income change slightly if you have a disability so you should re-check the eligibility criteria.
But, there are some exceptions. Check that you don’t match any of the following criteria before you start applying:

Is the course duration less than one year?
Is the course Intensity less than 50%?
Will you be enrolling on a part-time Initial Teacher Training (ITT) course?
Have you already gained a first degree and will you be studying for a postgraduate qualification?
Will you be studying more than one part-time course at a time?
Am I eligible for any other financial help?
Yes! There are hundreds of other forms of financial support out there to help you, including:

Income related benefits are on offer to some part-time students. Any fee grants or course grants that you receive do not count as income when assessing your entitlement to benefits. If you are on low income and meet the relevant conditions you could be eligible for Income Support, Housing Benefit or Local Housing Allowance, and Council Tax Benefit.

Jobseekers’ Allowance is available for part-time students if they are out of work or work less than 16 hours a week and actively seeking work.

Additional Fee Support Scheme (AFSS) helps students in England that are on lower incomes and it’s a great fund to think about if you’re struggling to meet all your course costs.

Access to Learning Fund (ALF) is sometimes called a hardship fund and is provided by your university. It should give you some additional financial help whilst studying.

Disabled Students Allowance (DSA) offers part-time students with a disability the opportunity to apply for extra cash to help pay for items like specialist equipment. It the added advantage of not being income-assessed.

Student Loan Early

Student Loans

The first place to start is the official Student Loans Company. This government-backed scheme is the cheapest long-term debt you’ll ever get. Although you pay interest, the rate is linked to inflation, so in effect you will broadly repay the same amount that you borrowed in the first place.

The scheme can offer two types of support:

Student Loan for Tuition Fees – obviously, this will help pay your course fees and is paid directly to the university or college. The Student Loan covers your fees in full (up to £3,290 for 2010/11 or £3,225 for 2009/10).

Student Loan for Maintenance – to cover the essential day-to-day stuff like rent, bills, travel and books. The amount you can borrow will be assessed on factors such as your household income, and the cash will be paid directly into your bank account at the start of each term. The Student Loan for Maintenance is worth up to £4,950 if you live away from home, or more if you choose to study in London.

There’s nothing to repay until after you graduate, and even then you only repay 9% on your earnings above £15,000 – if you earn less than that you won’t have to repay a thing. Put it this way, someone earning the average £18,000 starting salary for a graduate would repay £5.19 a week – the price of a couple of pints of lager if you’re lucky!

Grants and Bursaries

These are practically free money! Grants and bursaries, whether given by the government, your college or university, or a charity, are free money that you don’t have to pay back.

Up to two-thirds of students are eligible for the government’s Maintenance Grant, sometimes referred to as the Special Support Grant. This cash is targeted at students from lower income families, with one-third of students eligible for the full amount – almost £3,000.

All universities and colleges will offer a range of bursaries. In fact, any student who pays full tuition fees and gets a full Maintenance Grant is guaranteed to be offered a minimum bursary of at least £329, although some institutions offer more than £1,000.

Your university will also have an Access to Learning Fund, which quite simply offers hardship grants for students in financial difficulty. Access Funds tend to run out quickly, so it’s best to get your application in as early as possible.

As well as government grants and university bursaries, hundreds of charitable trusts and foundations run their own grant schemes. These can offer sometimes smaller-scale, but just as important, financial support. Have a search through the Student Cash Point directory to find what’s available to you.

Scholarships

Again these tend to be non-refundable, just like bursaries or grants. They can be offered by colleges, universities and charities, whilst some companies will also provide industrial scholarships or sponsorships. The main difference from a bursary is that scholarships tend to be awarded on merit, for example academic achievement, sporting excellence, where you are from, or what subject you are studying.

There are some weird and wonderful funding schemes available. How’s about the John Lennon Memorial Scholarship, for students in Merseyside who have a passion for environmental issues, or the Onassis Foundation Scholarship to support postgraduate study at a Greek university?

Student Bank Accounts

All the big high street banks have special student offers. The best thing about these accounts is that they offer an interest-free overdraft, up to a set amount, so you can pretty much borrow money for free rather than pay crippling interest rates. Oh, and to try and tempt you to sign up, many banks offer tasty little sweeteners like free MP3 players and discounted rail travel, so there might be a few extra perks available!

Benefits

These are especially important to part-time students, students with children, or those with disabilities. There are a number of schemes, such as Income Support, Housing Benefit, and Incapacity Benefit that you may qualify for.

Early Redemption Fees

With interest rates at historically low levels an increasing number of people are being lured by the attractive loan rates currently available. You can borrow £5,000 for as little as 6.3%. But many of those lucky enough to be in a position to repay their debt early are being charged for doing so. IF estimates that this is costing consumers about £336m a year.

Nearly 75% of personal loans charge early redemption penalties yet many providers are guilty of burying this fact in the small print of the terms and conditions. IF, which does not penalise you for repaying a loan early, is calling for those that do to make their charges more transparent.

Grenville Turner, chief executive at IF, says: “If you think these charges are so reasonable, stop hiding them in the small print and be more upfront with borrowers about the costs of early repayment.”

In addition to the lack of transparency another concerning factor about these redemption penalties is the way in which they are calculated. The Department of Trade and Industry (DTI) recently announced that plans to reform the 30-year old Consumer Credit Act, and this is one of the areas it will focus on.

Most personal loan companies calculate the total amount you pay over the term of a loan using a scheme called Rule 78. This tends to stagger interest unevenly so that in the early stages of the loan a higher proportion of the repayments are made up of interest, leaving you with a larger amount of capital outstanding. Most also calculate redemption penalties in the same way, making it virtually impossible for consumers to understand how an early settlement figure is arrived at. Research from online bank Egg found that the majority of lenders that levy penalties charge about two month’s interest.

Whilst the DTI’s proposals will not ban companies from charging redemption penalties, they will only be able to charge one month’s interest. However, a number of personal loan providers do not levy any fee for repaying your debt early, so if you think you may be in a position to do so it is worth considering taking out one of these loans. In addition to IF and Egg, other companies that offer loans penalty free include Virgin, Cahoot, Nationwide, Woolwich, Barclayloan and Morgan Stanley.

You do need to look at the rate of interest however, as it may still work out cheaper to go for a lower rate even though you will face redemption penalties for paying the debt off early. Check the details of the terms and conditions though as there is no correlation between the rate of interest charged and whether that lender levies redemption penalties. For example, HSBC has an interest rate of 13.9% on a £5,000 standard loan but it also charges those who clear the debt early. Yet, Northern Rock is offering a penalty free loan, the rate for which is only 6.3% if you borrow £5,000.

Before you take out a loan to pay for Christmas, please think very carefully about what you’re doing. The chances are your loved ones will be happier enjoying frugal festivities than having a huge blow-out and then worrying about your financial predicament for the rest of 2010!

If you really feel you have to borrow money to cover a crucial expense – whatever the time of year – you need to find a way of doing it as cheaply as possible.

I’m going to run through some of your best and cheapest loan options. And I’m also going to touch on a couple that should be avoided!

0% credit card

If you have a squeaky clean credit record and need to borrow a relatively small amount of money, a 0% purchase credit card may be your cheapest and best borrowing option.

This sort of card offers you 0% interest on all new spending for a set period of time. At the moment, the market leader is the Tesco Clubcard credit card, which offers 0% on purchases for a full 12 months. After that, the typical APR reverts to 16.9%.

A 0% purchases card is, in effect, a short term interest-free loan. However, you need to make absolutely sure you can clear the balance completely before that interest-free period comes to an end; the interest rate you’re charged after this point is almost certainly going to be far higher than that charged by a personal loan.

The other main catch is that 0% credit cards are usually only available to people with excellent credit ratings. An unsuccessful application could make a bad credit rating even worse, so before you apply for one of these cards, it’s important you find out exactly where you stand.

You can get a free credit report from Experian if you sign up for a 30-day trial of the service. If you don’t want to be charged in the future, just make sure you unsubscribe before the 30 days come to an end.

Compare credit cards – 0% overdraft

Another way to get an interest-free loan for a relatively small amount is to find a current account with a decent 0% overdraft facility.

One of the best on the market at present is the Alliance & Leicester Premier Direct current account, which offers customers an interest-free overdraft facility of up to £2,000 for 12 months after the account is opened.

Just be aware that, when your interest-free period ends with the Premier Direct account, you’ll be charged an overdraft ‘usage fee’ of 50p a day (up to £5 a month). Other current accounts charge even higher fees, in the form of hefty interest rates.

Personal loan

Next up, one of the best-known consumer borrowing options: The personal loan (also known as the unsecured loan).

This is the most expensive form of borrowing I’ve covered so far: the cheapest personal loans currently on the market are the Nationwide Existing Customer Loan (starting at 7.9% APR for Nationwide FlexAccount customers only) and the Alliance & Leicester Exclusive Personal Loan (starting at 8% APR ).

However, there are certain circumstances in which a personal loan may be the best and cheapest solution for you. For example:

Your credit record doesn’t allow you to apply for a 0% balance transfer card or low rate credit card ;

You need to borrow more than a credit card or overdraft will allow (the lowest personal loan rates are typically offered to people borrowing between £5,000 and £25,000).

If you do opt for a personal loan, there are several factors to consider other than the ‘headline’ rate on offer.

Zopa

If you can’t or don’t want to get a personal loan, you might want to consider borrowing from Zopa , an innovative social lending venture. In a nutshell, Zopa allows you to borrow from other people, rather than from a bank.

Compare loans

When you apply for a loan, Zopa will credit score you and offer you a loan according to how good (or bad!) it deems your credit rating to be.

At the time of writing, Zopa maintains that those people in the A* credit rating bracket can typically get a £5,000 loan, spread over three years, at an APR of 9.6%.

Warning: Loans to be avoided!

So, my round-up of ‘good’ potential borrowing options is complete. As you can see, the type of loan that’s right for you will depend entirely on your credit status, how much money you need, and how long you think it will take you to pay it back.

I’ll finish by highlighting two sorts of loan that you should avoid if at all possible :

Secured loans

A secured loan is ’secured’ against your home, or sometimes your car. That means that if you fail to keep up with your monthly repayments, you could literally lose the roof over your head, or your means of transport.

Payday loans

Payday loans are essentially cash advances on your salary. It takes next to no time to apply for one, no credit checks are normally carried out, and the cash (usually up to £1,000) can be transferred into your bank account the very same day.

HOWEVER – payday loans normally come with huge APRs attached – often way over 1000%!

The timing of the launch should reel in many desperate potential borrowers, who have failed to eke out their December salaries after the spending excesses of Christmas and the New Year.

Wonga stresses that credit and identity checks are strict but if the application can be checked and decided upon so quickly, as promised, can that really be the case? The company also says that if borrowers use the facility for short term emergencies, say £150 borrowed for a week, then repayments are very competitive at just £10.50 or 7%.

However, for the company to make money, which is their aim, they will be counting on some borrowers not repaying in time.Running short of cash is a problem for many, but January is that much longer than other months if you got paid a little early in December.

For some this could mean dipping into an overdraft. The trick here is to plan ahead and make sure you don’t end up making unauthorised withdrawals which will cost much more. For others, the lure of a loan will be strong. And this is where it’s possible to get into real hot water.

Payday loans are not new but they are being promoted and advertised more heavily and widely than ever before and the iPhone app launch is just another alternative to the many ways to borrow money at a possibly crippling level of interest. They claim to be short-term emergency loans for employed people who need to bridge a gap. But the reality can be expensive and potentially very high risk.

Here are 5 reasons to avoid payday loans

1. The cost.

The interest rates which apply to these loans may not be easy to spot initially. This is particularly true of websites – many that I looked at had no details on the home page and in some cases no rate displayed at all. The loan companies also say that because they are offering short-term lending, the annual percentage rate (APR) is ‘misleading’. This is simply not true.

APRs are the easiest way to compare the cost of loans. For instance, the cheapest loan I found online at Moneyfacts has an APR of 8.9%. Compare this with the cheapest payday loan I found at 260.2%. This means the payday option will cost you nearly 30 times more whether you’re borrowing for a week or a year – and remember that’s the cheapest price.

Usually, payday loan companies are happier to quote the interest in pounds and pence. For instance, if the company charges £29.98 per £100 and you borrow £100, your repayment amount would be £129.98. Of course it works out as 29.98% a month – still a long way off the 8.9% a year you can get at a bank.

Where APRs are quotes, they are almost always ‘typical’ rates which means only around two thirds of applicants will get this rate and the rest will probably be charged even more. See below for my list of the top 10 most expensive payday loans.

2. The ’short-term’ bait.

Payday loan companies also claim APR is not relevant to them because their loans are short-term and not annual. But customers say these firms will happily extend short-term loans repeatedly, allowing borrowers to repay the debt over many months rather than a couple of weeks. Of course the longer you take to repay the money, the more interest they will rake in. So although they are sold as a ‘quick fix’, once they have you on board, they are happy to let you get deeper into debt, typically extending the loan up to five times.

3. The lack of credit check.

Many payday loan firms carry out little or no credit check before they lend. You may think it’s a good thing that you can borrow without having to prove you can afford it. But it’s irresponsible lending and won’t do you any favours. Ultimately, they don’t pay the price – you will when it takes months to repay a loan you should not have had.

4. The lack of information.

We know that details of the cost of the loan may be tucked away in a leaflet or several pages into a website, but there is plenty of other information payday loan companies could give you which many choose not to.

For instance, they don’t confirm whether they have a UK consumer credit licence, where they are based or who to complain to if there is a problem. Many sites are run out of other countries.

US loans companies are currently very attracted to the UK market because their own government has capped the amount of interest they can charge to US borrowers. No such protection here, so they can – and do – charge whatever they like.

5. The risk of fraud.

Some sites provide no contact details at all. You just enter your personal information and bank details and hope for the best. The best in this case is that they give you a loan and do not just rip off your ID or sell your information on to fraudsters.

Would you give this information to a stranger in the street? It’s no different if the site has no way for you to verify it or contact the company. One company with absolutely no contact info is ‘3monthpaydayloans’, which is run out of India but is marketing in the UK.

Information from individual websites, correct as at 5 January 2010.

A final thought:

The Office of Fair Trading is currently investigating payday loans as part of a wider review of responsible lending. In the meantime, if you need a loan desperately then make sure you try absolutely every cheaper avenue first.