How to deal
with debt‘
your
If you wanted to take up juggling,
you would have joined the circus, not
gone to university. So how come each
month has become a balancing act
between keeping debt collectors from
the door, keeping up the minimum
repayments on the credit card and the
bank balance out of the red? And that’s
before we get started on the student loan. Never
before has university been so expensive, and that
leaves most students and graduates firmly in
one place – debt.
Students graduating this summer will owe an
estimated £21,000 (estimated to rise to £53,000
after the fee hike in 2012), and a survey
commissioned by utilities company uSwitch.com
of 1000 recent graduates found that nearly
70 per cent had underestimated how much debt
they would be in. Twenty per cent of student-loan
holders also wrongly believed their loans were
interest free.
“The most important thing with a student loan
is to realise that it’s not free money and you will
be paying interest on the loan,” says Louisa Parker
from the National Debtline. “It’s linked to inflation
so when you graduate and you start paying back
the money you’re paying back the equivalent you
borrowed at a later stage in time.” Lots of people
don’t realise that at the outset, says Parker, “so it
can take longer than they anticipated to repay
the debt”.
Student loans aren’t all bad, says Ed Ackerman,
who studied economics at the University of
Edinburgh and is now a business analyst at
A student loan is a low
priority debt - it won’t hurt
your credit rating or stop
you from buying a house
‘‘
Google in London. “You won’t be hassled for it if
you’re not working like other loans and it’s not
going to affect your credit rating or prospects
of buying a house,” he says. But it’s still worth
thinking ahead. “I wasn’t really worried at the
time as everyone had to take them. I didn’t really
think about the future or paying it off,” says
Ackerman, who is also a mentor for
FutureYou, an online community where you
can get support if you are out of work. “In
hindsight, they are more of
a burden than I first thought. I’m still
paying off quite a considerable
amount a month four years later.”
Under the current loans
system you don’t pay anything back
until you earn over £15,000,
although you are still accruing interest.
When tuition fees increase in 2012, this
threshold will go up to £21,000,
although the interest rates will
increase with the amount you earn. That
means you will end up paying back considerably
more than you borrowed.
“Student debt is a huge problem,” especially
for medical students who have to study for
at least five years, says Katie Petty-Saphon,
executive director of the Medical Schools Council
in London. After graduating, “if they work
continuously in the NHS for 30 years [starting at
the lowest rung and rising to consultant level],
the British Medical Association has
calculated that under the new
system they will have to pay back
£151,000 in interest and
repayments”.
Student loans aside, the majority
of graduates will also leave
university with commercial debts,
such as credit cards and overdrafts.
“Students can end up thinking that
all credit is the same,” says Lynne Condell, chair of
the National Association of Student Money
Advisers, based in Nottingham. Store cards and
short-term “payday loans” may tempt but they
charge huge interest rates so should be avoided.
The key to managing without these quick fixes
is to budget effectively, whether you are at the
start of you studies, or panicking about debt as a
graduate. The worst thing to do is bury your head
in the sand. “If you get advice early you have a
much broader range of options available to you,”
says Parker.
To get a handle on things, set up an internet
bank account and check your bank statements
regularly to makes sure you are not incurring
extra charges. Upgrade your student account to a
graduate account, as these tend to offer better
interest rates or interest-free overdrafts.
The National Debtline also has a free online
tool to show you how to budget, as well as advice
on how to write to creditors to negotiate reduced
payments. If you do have debts other than your
student loan, work out what needs to be paid
first. For instance, a credit card bill would be
classed as a low priority debt because the actions
that can be taken against you are less severe
compared with what happens if you do not pay
your utility bills, rent or council tax. The Citizen’s
Advice Bureau can offer free advice to help you
work out what’s best for you.
It’s not all doom and gloom, however, says
Condell. When you are earning, the loan
repayments are “a manageable amount of
money” for most people. Be realistic about
the cost, but don’t let it put you off getting
a degree. Catherine de Lange �
22 October 2011 | NewScientist | 5
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