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Student loan book buyer accused of mishandling accounts

The private company which brought the pre-1998 student loan book took money it was not entitled to out of accounts of more than 500 graduates and has passed students’ details to credit agencies, it has emerged.

Hundreds of graduates have complained that Erudio, the company that took over the repayment of 500,000 student loans issues between 1990 and 1997, has mishandled their accounts and provided a poor service.

Examples include individuals who have had money taken out of their account wrongly, with no notification and who have then gone overdrawn and had to pay bank charges.

The company admitted that due to a technical problem, 531 graduates had incorrect payments taken from their accounts. But it said the issue had now been resolved and the people affected had been refunded.

Martin Lewis, founder and editor of the MoneySavingExpert website, said the site’s forum had been inundated with complaints about Erudio.

“When this deal was done by the Government, the promise was that students would see no change, but people are having money taken when they shouldn’t and if you defer payment, it will go on your credit files.

“These are manifest, tangible changes. People are upset, angry and having sleepless nights because they think it will go on their credit record,” he said.

The Government sold the £900 million pre-1998 loan book to Erudio last year. Students with incomes under £28,775 a year have their repayments deferred, while those earning over that amount repay in 60 equal mortgage-style monthly instalments.  Payments are primarily collected via direct debit and graduates with loans are required to have a direct debit set up in case they earn over the threshold. The loan is written-off 25 years after graduating or when the individual hits 50 years of age.

But since Erudio took over the book from the Student Loan Company (SCL), a catalogue of problems has been reported.

Unlike SCL, which only reported students to credit reference agencies when they had defaulted on payments, Erudio has notified agencies of students with outstanding debt who have deferred payments.

In April, the company wrote to about 45,000 people to tell them that their details would be passed on to credit reference agencies.

Mr Lewis said that although that the inclusion of this data on credit files would not necessarily have negative consequences for individuals, as it could be taken as evidence of a well-managed loan, it did set a dangerous precedent. Despite reassurances, many students have been left worried that it could affect their credit rating in the future.

Hundreds of students found that money had been taken out of their accounts, without any notification, when repayments should have been deferred. This left some facing overdraft charges or seeing a negative impact on their credit score.

Students are also concerned that state benefit payments such as housing benefit, child benefit and child tax credits are being classed as “income” pushing them above the repayment threshold when previously, their payments had been deferred.

Problems with customer service have been reported with graduates on Erudio’s books unable to get through.

A spokesman for Erudio, which was formed by debt collectors Arrow Global and private equity firm CarVal investors in 2013, said the incorrect repayments problem, which affected 531 customers, had been resolved.

“We have resolved an interface issue, which arose as the loan migrated between SLC and Erudio, and have apologised to the customers who were affected, as well as offering to assist with the deferment process where we can.

“In the very few cases where payment has been taken incorrectly a refund has been processed and the account held in the system so that no further payments will be taken.”

The spokesman said that credit reference agencies were used for the purpose of validating data provided on forms, “to support responsible lending decisions”.

“The owner of the loans has always been permitted to do this,” he added.

A Department for Business, Innovation and Skills spokesman said: "The terms and conditions of fixed term student loans have not changed as a result of their sale to Erudio.

"Erudio has experienced some technical issues with their systems in getting up to date deferment status information and as a result a small number of  customers may have experienced some difficulties. We have raised this issue with Erudio directly and they have assured us that they have now resolved this problem."