Liga Germova, Paralegal at BW Legal has been discussing an article published on 23 September 2018 by The Times, in which Student Loans are being compared to Wonga Payday lender.
I have read many recent articles in the media, with the main focus being the significant amount of student debt that is becoming somewhat of a burden for an entire generation.
These articles will resonate with countless families in one way or another, and it goes without saying that it is surely time for a more truthful look at what university education is for and how it should be funded.
Although many will compare the artificially added interest rates to the well-known payday lender Wonga, quite frankly the two cannot be compared. As the media focuses on quoting extortionate student debt figures, there are many other problems with the system, such as maintenance loans being insufficient to cover most student living costs, or the impact these debts have on young people’s mental and financial wellbeing.
Worryingly, some young people are of the opinion that student debt is a ‘safe debt’ or even an ‘abstract concept’, almost as though it does not exist. This seems largely down to the fact that there are no ‘real’ consequences if the debt is not repaid and that it cannot get out of control. Even Martin Lewis of Money Saving Expert says: “Ignore newspaper headlines about students leaving university with £50,000 of debt. That’s a mostly meaningless figure.”
Not like typical loans such as mortgages, payday loans or car finance, the student debt is paid back directly from earnings and only paid after a certain threshold of income is reached, therefore the amount to repay is dependent upon how much the graduate earns. Payments are taken automatically from the earnings and would stop if the graduate starts earning below the threshold. This means that the young person would only ever pay back the debt when they’re able to. Furthermore, the graduate will stop owing either when they’ve cleared the debt, or when 30 years (from the April after graduation) have passed, whichever comes first.
The system is almost a graduate contribution, intended so that those who gain the most financially out of university contribute the most. Some even regard the system as a ‘no win no fee’ education.
The recent articles also bring up the terrors that many young people will be renting for the rest of their lives, seeing as the student loan system is seen so damaging.
While many will say that student debt does not affect young people’s ability to obtain a mortgage and get on the housing ladder, it is not as straightforward as that. While student loans are not usually shared with credit reference agencies, lenders will look at how much the graduate is repaying each month and how that will affect their ability to meet the mortgage repayments. Undoubtedly, those with larger incomes are likely to see a greater impact from their student debt repayments. Whilst this would not be the core deciding factor whether or not the young person is able to afford a mortgage, it might affect the amount they are able to borrow.
Anxiety surrounding student finance and the life after graduation is a huge issue and is what can only be called a social experiment. The thresholds could be changed at any time and nobody has any idea how much they will actually end up having to pay.
There is currently very little academic research into how carrying the burden of such significant debt will affect young people’s mental wellbeing as they move through life and what long term impact there might be. Such debt I am sure might restrict career choices and may lead to lower job satisfaction.
There will unquestionably be many changes to the student loan system in the future. With universities set to increase their fees, the extensive gloominess about spiralling student debt looks unlikely to decline.
Pitiable decision making by government has left the student finance system in a turmoil. In a country where education is still perceived as a doorway to opportunity, the student lending structure calls for renewed ideas and strong leadership for the system to be put back on track.
At no point should young adults be forced to choose between higher education and taking out loans that would adversely impact them for the rest of their lives.
There are no easy answers and certainly a massive challenge lies ahead.
For anyone seeking advice on how to manage student debt, there are several non-profit organisations offering free impartial advice, such as: The Step Change Debt Charity, The Citizens Advice Bureau or The National Debt Line. Equally, organisations such as Mind, Samaritans or CALM offer mental wellbeing support.