Sunday 21 December 2014

State 'debt deals' may sink your child's college future

Borrowers' allowance now harder to secure for over-18s

Published 02/03/2014 | 02:30

Debt deals could cause difficulties for adult children who hope to go to college. Photo: Getty Images.
Debt deals could cause difficulties for adult children who hope to go to college. Photo: Getty Images.

PARENTS who sign up to the new state-backed debt deals could scupper their children's chances of going to college.

Under the deals, which are struck through the Insolvency Service of Ireland (ISI), debtors must meet stringent spending guidelines, known as "reasonable living expenses" Although an allowance for living expenses can be made for a borrower's children, it can be harder to secure such an allowance once a child passes the age of 18.

One adviser contacted us about a debt deal he was striking on behalf of two parents. "The bank will not allow any allowance for living expenses for the borrowers' children once they hit 18 years of age," said the adviser, who did not wish to be named. "In this case, two of the kids will turn 18 during the lifetime of their parents' debt deal. The borrowers are now looking at bankruptcy as the only way to protect their ability to continue to support their kids once they turn 18 – including provisions for third-level education."

The ISI's guidelines allow for "special circumstances" to be taken into account when drawing up debt deals "where the debtor is contributing financially to the care of an adult dependent such as, for example, an elderly relative or a college-going child."

"The costs of that child going to college would have to be reasonable but, subject to that qualification, they are permissible," said a spokesman for the ISI.

Banks must agree to any debt deal put forward by a debt adviser on behalf of a borrower – if that arrangement is to go ahead.

The Sunday Independent asked the banks if they made any allowance for living expenses for a borrower's children once the children reach the age of 18. Most banks said it was up to the debt adviser to make a case for allowances for such children – and that this case would then be considered by the bank.

"Any request for continuation of living expenses beyond the age of 18 would likely be considered on a case-by-case basis by creditors," said a spokeswoman for Bank of Ireland.

A spokesman for Permanent TSB said: "Permanent TSB reviews every case on its own merit and does not have a blanket policy. The issue is one for the ISI guidelines, not for the individual banks."

AIB said it makes allowances for dependants.

Ulster Bank said it aims "to come to a reasonable arrangement with any customer who approaches us. Expenditure is adjusted for childcare to reflect age," said a spokesman for the bank. "There can be an allowance for adults living in the house with special circumstances."

A spokesman for KBC said it reviews each case on its own merits "taking account of financial and other circumstances and the ISI reasonable living expenses."

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