For years, young people across the country have been educated into student debt, but it’s high time that universities start educating students about their debt.
As the average student currently leaves university with £50,000 worth of debt, one would presume that universities would be invested in guiding their students to make the right financial decisions when living on a tight budget. Of course, there is available information online and a quick internet search provides hundreds of articles with all the information a worried student would need.
However, for students concerned about making friends as well as all of their 9AMs, student budgeting may be the last thing on their mind which is exactly why universities should make more of an effort in reminding students what their loans are for.
A recent survey compiled by The Student Room, an online student forum, revealed that of the 1,500 students currently enrolled at UK universities, 30 percent said they overspent their loans on shopping sprees, 26 percent disclosed they used their loans for drinking and clubbing and 16 percent admitted to spending the entirety of their loan within a month. Rather alarmingly, the questionnaire also uncovered that some students have spent their loans on holidays, cosmetic surgery, tattoos, gambling and visiting strip clubs.
Ultimately, it is the choice of the students to decide what they spend their money on as they are the ones who must pay it back and the survey from The Student Room is not representative of all students across the country. However, these results reflect the lack of guidance students get when it comes to budgeting at university. There is a clear misuse of the student loan as its main priority is to cover basic living expenses rather than holidays and cosmetic surgery. One would presume that those using their loans on such activities do not need the extra cash from the Government.
Perhaps the system contextualising each student’s financial position and calculating every individual loan is flawed, but the more likely scenario is that the students are not prioritising their needs over their wants. Save the Student also assessed 2,000 in their annual National Student Money Survey. It was revealed that 80 percent of the participants were worried about making ends meet, a quarter confessed to never having budgeted and 70 percent felt that the maintenance loan doesn’t stretch far enough. Over half of participants claimed that they did not know the amount of debt they will accrue after graduating and four in five wish they had had better financial education as well as feeling that they started university without essential money skills.
The current policy is that once a student leaves university, they will only start repayments once they’re earning £21,000 a year, equivalent to £1,750 a month. When their salary rises, they will pay back a fixed rate of nine percent of everything they earn above the £21,000. In this case, employment can refer to self-employment and in some cases investments and savings.
Many parents and students worry they will not be able to repay their debts if they do not find a well-paid job, however someone on a low wage will not be repaying as much as someone on a high wage because of the nine percent fixed repayment rate. Therefore, the system has been designed in a way where the ones who gained the most financially from attending university end up contributing the most.
However, it seems it is not the university fees and a lifetime of paying them back that are concerning most, but rather that many students feel their maintenance loans don’t cover their expenses. The maintenance loan is calculated based on parents’ income because the student’s parents are expected to contribute, which is why those who come from wealthier families get a smaller maintenance loan.
In expensive areas like London living in halls can cost as high as £12,948, but the maximum maintenance loans students can get in this city from 2017/18 are £11,002, so a scenario is created where students may not be able to cover their rent with their maintenance loan, never mind living expenses. Go Compare calculated the cheapest and most expensive universities in the country based on tuition, accommodation, travel and other crucial related expenses and found that out of the 10 most expensive universities, eight of them were based in London. So, those living in London will barely be able to cover their accommodation fees and will need money from elsewhere to fund their living costs.
The median average cost of universities excluding university fees and private rent is around £10,000, however the maximum amount of maintenance loan students can get from 2017/18 is £8,430 if they’re living away from home. Therefore, most students would have to resort to getting a part-time job as well as utilizing any available savings and help from their families.
Although most would argue that practice is better than theory, thus university is the perfect time to figure out how to live on a tight budget. The fact that over half of the participants of the survey did not understand just how much debt they will be leaving with and the process of paying it back highlights the desperate need for more guidance and information on managing student loans.
Some students taking part in the survey by Save the Student further expressed that, “universities should give more financial assistance considering we pay £9000 a year” and that “financial education would reduce the amount of people that come out of uni with debts and overdrafts.”
As well as the maintenance and fee loans, many banks offer 0 percent interest overdraft schemes, which may seem tempting and are great for a limited cash flow, but are another sum to add to the piling debt students acquire. For some young people, university will be the first time they open a bank account with a large overdraft, so it may be tempting to splurge on non-essential items, but many find themselves maxing out their cards within the first few months.
The founder of Save the Student, Owen Burek said: “The results speak for themselves: students are hard done by. Not only do they struggle to make ends meet on a lacklustre loan, but they are also disillusioned with the terms and conditions bundled in with student finance.”
He continued: “After three or more years of hardship, graduation doesn’t always spell the end of money worries – and it seems that students are entering the graduate world wondering if their degree was really worth the money they’ve paid for it.”
Last year, the charity Mind stated that the 28 percent rise in university students seeking mental health counselling in the space of three years coincides with the trebling of tuition fees as well as other financial factors.
So, in a time when one in four students suffer from mental health problems, it is up to our universities to offer talks and sessions explaining the student loans and the basic of budgeting and elevate the stress many already face at university. Instead of blaming students for misusing their student loan, they need to be educated how to better manage their funds in the first place.
Diyora Shadijanova is a student at the University of Warwick and editor of The Tab Warwick.