Commentary on Sections Student loans Section 257: Student loans under the 1998 Act: IVAs, and Section 258: Student loans under the 1990 Act: IVAs and bankruptcy
872.These two sections amend the Teaching and Higher Education Act 1998 (“the 1998 Act”) and the Education (Student Loans) Act 1990 (“the 1990 Act”) so that a student loan made to a borrower who enters an individual voluntary arrangement (IVA) will be treated in a similar way as it is currently treated under a bankruptcy in England and Wales. Section 258 also amends the 1990 Act by inserting bankruptcy provisions for Northern Ireland that correspond to those in England and Wales in regard to student loans.
873.IVAs were created by the Insolvency Act 1986. An IVA enables a debtor to avoid bankruptcy by coming to an agreement with creditors to pay off a percentage of his or her debts over a given period.
874.At present, the treatment of student loans under an IVA differs from their treatment under a bankruptcy in England and Wales. There are two types of student loan. The newer type of loan, known as an income contingent loan, is repayable by a borrower under the 1998 Act, and the older type of loan, known as a mortgage style loan, is repayable under the 1990 Act.
875.The 1998 Act excludes loans from a borrower’s bankruptcy debts, so that during and upon discharge from bankruptcy, the borrower remains liable to repay his student loan. Repayments are linked directly to a borrower’s income so the student debt will not need to be repaid until the borrower’s income is above the income threshold. Section 257 amends the 1998 Act to provide that similar arrangements will apply to student loans under an IVA as currently apply under a bankruptcy. This means that the liability of a borrower to repay a student loan will not be reduced when the borrower enters into an IVA.
876.Section 258 makes similar provision in respect of the 1990 Act, so that a mortgage style loan is not to be included in the voluntary agreement. This means that the liability to repay the mortgage style loan will not be reduced when someone enters into an IVA. In respect of Northern Ireland, section 258 inserts similar provision about IVAs and also makes provision about bankruptcy corresponding to the existing provision under that Act for bankruptcy in England and Wales.
877.These provisions apply to England, Wales and Northern Ireland.
878.Subsection (4) of section 258 amends Schedule 2 to the 1990 Act in respect of Northern Ireland. The 1990 Act provides that, in respect of England and Wales, a mortgage style loan is prevented from forming part of the estate of a person who becomes bankrupt and also from forming part of the bankruptcy debts where the loan was taken out in England and Wales. Subsection (4) makes similar provision in respect of Northern Ireland.