Understanding Student Debt
Studying at university can be an expensive experience, and for some young individuals, the first practice of dealing with financial responsibilities. These responsibilities can bring about student overdrafts, credit card fees and in general a lot of student debt. Is it possible to leave university with a degree, but still be in the black?
Student debt can include tuition fee and maintenance loans issued by the government, personal or bank loans taken out by the individual to help pay towards their course or living fees, or even personal spending and accounts that accumulate throughout the three years. Loans issued from the government are transferred to a student bank account directly, and/or to the university/institution to pay for course tuition fees and living expenses ranging from rent payments, to student household bills. These types of loans can be means-tested, allocated, and then paid back once the student has graduated and is then earning over a certain threshold, which is currently at £21,000, then they student loan repayments may begin.
Where students are not allocated maintenance loans, specific banks and building societies will be able to offer personal loans to help cover tuition or university-related costs. However, these decisions will be dependent on a candidate-by-candidate basis. Lastly, student credit cards, overdrafts and credit accounts which can be used to ease living and shopping costs can add, or even multiply a student’s debt level.
One of the main reasons why the university experience may seem one of the most expensive to young people, is due to students not being able to work full-time whilst studying, paired with living in student halls or near university where rents are generally high. These bills tend to put strain on other financial areas, such as food, household bills, travel, rent and even leisure areas, like going out or personal purchases.
It is easy to succumb to material needs and pressures during university and end up spending more money than you plan or even able to afford to. When this downward spiral begins it is vital to stop unnecessary spending because the damage at the end will be even more difficult to rectify.
There are students who leave university without overdrafts, credit cards and personal accounts, and not only have they helped their credit rating, but they have started their adult life after graduation in the best possible position. Students who gather debt during university might not understand the consequences once they finish studying – payments still have to be made whether you graduate or not.
Credit cards and personal accounts are suitable for emergency situations, or for increasing an individual’s credit rating, however, it can easily turn sour if overspending happens. Depending on the terms and conditions, some accounts can charge interest of up to 40%, and if repayments are missed or overdue, the issue charges can be extortionate. Students should prepare for the worst if they spend on credit accounts, and make every minimum payment due to avoid extra charges.
Students budgeting – students should create a monthly, weekly and daily budget to keep their finances on track. A monthly budget will help them understand their total incomings and outgoings for all bills and groceries, whilst a weekly budget will show a more detailed breakdown of the activities and spending that occur each week, and a daily budget can really bring home the amount of money they have every day. The daily spending cap will provide students with a better understanding of how much they spend each day, and the importance of planning ahead for bigger spending.
Budgeting can become a tricky task whilst at university due to Fresher’s week, student night outs and unexpected finances. If these do occur then students can then try to cut down on their spending slowly, and within manageable amounts to help get their finances back on track.