There’s been some Twitter traffic lately about student debt, including some tweets just yesterday.
Firstly, this from @CashQuestions (Annie Shaw):
“There’s some sort of bullsh*t doing rounds that student debt shdn’t count if u apply for a mortgage. It counts when u come to pay tho – doh”
That was, I think, a response to this tweet from @little_mavis (Mary Wombat) (and retweeted by @CashQuestions):
“I hate the ‘student loan debt isn’t really debt’ or ‘a different sort of debt’. A DEBT IS A BLOODY DEBT. YOU OWE SOMEONE MONEY.”
“Yeah but no but”
So … are student loans are a different sort of debt?
No, absolutely not, in that you owe someone money.
However, yes, in that the debt does not fall due unless and until your income goes above a certain level. In that way it becomes more like a tax.
If you had a bank loan, the bank would not say “OK, that debt is not due; you don’t have to pay me because you don’t have a job – or you have a low-paying job – right now.”
In that way a student loan is better than other kinds of debt, as far as the debtor is concerned.
Effect of bankruptcy
However, if the worst comes to the worst and someone goes bankrupt who still has student loan debt: in that case, the student loan is different too. In my book “Back to the Black: how to become debt-free and stay that way”, I say this:
When you are bankrupt you do not, in general, make payments to your creditors; they make a claim to your trustee instead. There are, however, a few exceptions, payment for which you remain responsible. For example:
- secured creditors (e.g. any mortgage you may have)
- “non-provable” debts (e.g. court fines and maintenance arrears under divorce settlements)
- student loans.
Repay or delay?
Here is another interesting issue around student loans. As Martin Lewis says (30.08.2011) on his excellent “Moneysaving Expert” site, student loan is (relatively) cheap debt; therefore should you repay it faster than you’re required to (if you’ve got spare cash) or is it better to save?
The answer depends, of course, on your situation, so the site has a calculator to help answer the question.
WANT TO KNOW MORE?
The MoneySavingExpert site and calculator: click HERE:
“Back to the Black”: eBook on managing debt
To sample for free, or purchase (£0.70 / $0.99), my debt advice book:
- “Back to the Black: how to become debt-free and stay that way” is available in the Kindle store. Click HERE:
- It’s also available in all e-formats, including .pdf, at Smashwords. Click HERE:
Just one point to add, some student loans CAN go in a consumer bankruptcy, it all depends when the loan was taken out.
Basically there are two sorts of student loans and different rules apply depending upon when you took out the loan. The first type is called the ‘old style’ or commonly known as ‘mortgage’ loan and the second type is the ‘new’ style which commenced September 1998.
Student loans under the old style (mortgage loan) are seen as simple contracts and like other unsecured debts the lender has six years from the date of the last payment or acknowledge of the debt to issue proceedings for court. If however you have previously asked to defer the payments then this could be seen as acknowledgement of the debt which will start the six year time limit once more.
Important if someone is considering bankruptcy and has that older student loan.
I wasn’t previously aware of the distinction between the old and new types of student debt. I’ll post a note pointing this out, with a link to your site.
I also wasn’t aware of the fact that I was supposed to check my site and “approve” comments from time to time. That’s why I haven’t seen this note of yours till today, when I found a bunch of comments, including yours, which were still “in limbo”; some of them going back to 2009!