Today, Buzzfeed reported on threatening letters being sent from ‘Smith Lawson and Company’ to those in arrears on their government-issued student loans. Let me do some mansplaining.
If you’ve been a student at a UK university any time in the past 20 years, it’s likely that you will have taken out a government loan to cover your tuition, and/or living costs. I certainly did, as did Christine, and just about everyone else I know who went to university.
The government loans are managed by an arms-length company called the Student Loans Company. It runs on a non-profit basis and is mostly owned by the UK Government‘s Department for Business, Innovation and Skills – with smaller holdings by devolved administrations in Wales, Scotland and Northern Ireland. The loans are subsidised by taxpayers, so the interest rates are very low and any debts are cleared after 30 years, or upon death.
Unlike bank loans, repayments for student loans come through the tax system. If you work for a company that is part of the pay-as-you-earn (PAYE) system, then these repayments are deducted automatically from your wages every month, provided that you are earning more than the repayment threshold. For students who started university before 2012, this is 9% of what you earn over £15,000 per year, and for post-2012 graduates it’s 9% of what you earn over £21,000 per year.
This all sounds fair and reasonable so far, but only applies if you’ve graduated and are earning a reasonable salary. You would hope that this would apply to the majority of people, as many go to university to improve their job prospects, but it doesn’t always work out that way. There are people out there who, after graduating, don’t earn money for extended periods of time, for a variety of reasons – unable to get a job, childcare responsibilities, further study, and so on. Whilst you shouldn’t, in theory, have to repay loans if you are not earning enough to repay, this does result in some people ending up in arrears on their student loans.
Which brings me to ‘Smith Lawson and Company’. Graduates who are in arrears on their loans have been receiving letters from them, demanding payments for their ‘client’, the Student Loans Company. But the letters are misleading – ‘Smith Lawson and Company’ doesn’t just share initials (SLC) with the Student Loans Company – it is the Student Loans Company. It’s a trading name, but one that looks like a debt collection agency. It’s an intimidation tactic, to encourage those behind on their repayments to cough up.
SLC are not the only ones doing this though. Earlier this week it came to light that payday lender Wonga.com (who don’t get a link because of their predatory interest rates) were fined £2.6million for sending letters from non-existent law firms. The fine was from the Financial Conduct Authority, but now a police investigation has been re-opened that could see Wonga.com face criminal charges. SLC deny they’re doing anything wrong, in a statement given to Buzzfeed, but I feel that it’s intimidating, and dishonest. The fact that Smith Lawson and Company is just a trading name is hidden well away in the small print.
And it may well be that many other companies use similar tactics to scare debtors into coughing up. MoneySavingExpert.com wants to know if you’ve experienced something similar with any other firm. It will be interesting to see how deep this rabbit hole goes, but I’m particularly annoyed at SLC. As a government-backed company it should be setting an example to the rest of the industry, and not taking part in the same race to the bottom as its peers. It’s shameful behaviour.