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鈥檚 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 鈥� debt.
Students graduating this summer will owe an estimated 拢21,000 ( after the fee hike in 2012), and a 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.
鈥淭he most important thing with a student loan is to realise that it鈥檚 not free money and you will be paying interest on the loan,鈥� says Louisa Parker from the National Debtline. 鈥淚t鈥檚 linked to inflation so when you graduate and you start paying back the money you鈥檙e paying back the equivalent you borrowed at a later stage in time.鈥� Lots of people don鈥檛 realise that at the outset, says Parker, 鈥渟o it can take longer than they anticipated to repay the debt鈥�.
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Student loans aren鈥檛 all bad, says Ed Ackerman, who studied economics at the University of Edinburgh and is now a business analyst at Google in London. 鈥淵ou won鈥檛 be hassled for it if you鈥檙e not working like other loans and it鈥檚 not going to affect your credit rating or prospects of buying a house,鈥� he says. But it鈥檚 still worth thinking ahead. 鈥淚 wasn鈥檛 really worried at the time as everyone had to take them. I didn鈥檛 really think about the future or paying it off,鈥� says Ackerman, who is also a mentor for , an online community where you can get support if you are out of work. 鈥淚n hindsight, they are more of a burden than I first thought. I鈥檓 still paying off quite a considerable amount a month four years later.鈥�
Under the current loans system you don鈥檛 pay anything back until you earn over 拢15,000, although you are still accruing interest. When tuition fees increase in 2012, this threshold will go up to 拢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.
鈥淪tudent debt is a huge problem,鈥� 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, 鈥渋f 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 拢151,000 in interest and repayments鈥�.
Student loans aside, the majority of graduates will also leave university with commercial debts, such as credit cards and overdrafts. 鈥淪tudents can end up thinking that all credit is the same,鈥� says Lynne Condell, chair of the , based in Nottingham. Store cards and short-term 鈥減ayday loans鈥� 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. 鈥淚f you get advice early you have a much broader range of options available to you,鈥� 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 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 can offer free advice to help you work out what鈥檚 best for you.
It鈥檚 not all doom and gloom, however, says Condell. When you are earning, the loan repayments are 鈥渁 manageable amount of money鈥� for most people. Be realistic about the cost, but don鈥檛 let it put you off getting a degree.