With decreasing funding, students need to think carefully about their financial choices
Current Affairs

UK Student debt: Myths, musts & payday lenders

Seeing was believing as Jeremy Corbyn romped to victory in the Labour leadership contest over the weekend. It completed a meteoric rise after having initially entered the race with odds as long as 200/1, to eventually gazumping his rivals with nearly 60% of first-preference votes. “Jez we did!” roared those in the red corner, while those anywhere to the Right either laughed, cried or covered their eyes in disbelief.

Whatever your political stance though, one issue the veteran Left-winger’s campaign has brought into sharp focus is that of student funding. With vibrant youths and young adults very much at the heart of Corbyn’s success, he’s pledged to scrap tuition fees for tertiary education and re-introduce grants. Ostensibly in response, the Tories are set to propose something similar, with the cost of free higher education funded by the decision to jettison plans for an expansion of the University sector.

A much-needed pressure reliever

It’s a timely boost for students, who’ve endured a grisly few years in which tuition fees have trebled, grants for low-income students have been scrapped, and caps on fees are now linked to inflation – rather than being caps in the true sense of the word.

Such reform hasn’t been without ramifications either. A recent poll of 2,000 students revealed that significant numbers had gambled, become heavily dependent upon credit cards or even sold their bodies in a bid to cover basic living costs. In addition, a subsequent survey showed that an astonishing 27% had turned to payday lending.

Such rash decisions have long-term implications on many levels, and it’s important to be aware of the facts before making choices one may later regret.

Full-time students are still able to apply for maintenance loans to cover things like food, accommodation and travel, and this is repaid in the same manner as a loan for tuition fees (i.e. 9% on everything earned above £21k when you are working). The amount you can borrow comprises both a mandatory percentage (currently up to 65% of the maximum living cost) and an income-assessed portion (which is linked to parents’ residual income). 

Please sir, can I have some more?

The problem facing students is that maintenance loans are often insufficient to keep things ticking over for the year, or are limiting in terms of lifestyle. This results in a desire to seek other forms of finance, and as the surveys mentioned above demonstrate, it can be a dark road to nowhere.

While the idea of payday lending, gambling and prostitution may be inconceivable for the financially secure, students face a unique conundrum. Without the opportunity, and indeed an income, to build their credit score, gaining access to credit can be very difficult, and it is thus not a complete surprise that some students have turned to such extreme measures.

But contrary to popular belief, you don’t need to be rich, old or lucky to have a decent credit file. These five simple tips can go a long way to building your credit score, thus allowing you the chance to get your hands on an affordable loan in the future, at a rate you deserve:

  • Pay off any overdue bills or debts
  • Get a mobile phone contract
  • Use your credit card, but wisely (spending small amounts and paying it off each month)
  • Don’t go into your overdraft!
  • Get on the electoral roll

Here’s a guide which elaborates further on the above points, but all of these are easy steps which don’t require a steady income and will give your credit history a boost. This, in turn, will open doors to reputable, fair lenders that you can trust. It may take a bit of time for the above to take effect, but it’s a worthwhile process, and while many lenders will look the other way to a loan application in the absence of an income, there are companies like Future Finance which position themselves as specialist student lenders.

Keep it on the straight and narrow

What cannot be emphasised enough is that the use of payday lenders should not be considered lightly and, if at all possible, avoided. Taking on high-interest, short-term debt can quickly snowball if the balance isn’t paid back on time, and rather than being the cure to money problems, it can perpetuate many more. What’s more, it may leave a black mark on your credit file in the eyes of many lenders for up to six years, affecting your ability to gain loans in the future.

Whether friendlier financial regulations are on their way or not, the majority of students will never be flush with cash. But the straitjacket isn’t as tight as you may think, and there are plenty of responsible options available which serve to ensure that your financial future gets off on the right foot.

So be smart, and give careful consideration to your finances. After all, the one thing even those in parliament seem united on is that students must get the most out of their years at university – not end up regretting them.

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Michael Todt

Mike joined Lending Works in early 2015 with a background in marketing and journalism. Having long held a passion for economics, he is now the chief contributor to the Lending Works blog, and regularly writes about all things peer-to-peer lending, fintech and personal finance.