Student Debt: The Facts You Need To Know
Student debt. Two words that set the pulses racing, students screeching and politicians cowering. Every year university seems to get more expensive – mainly because it does. Tuition fees creep up, as the cap is subtly raised to account for inflation. Student accommodation becomes swankier and thus pricier. When you graduate you will almost certainly be somewhere between £20,000 and £33,000 in the red (unless of course you or your parents were loaded prior to coming to university, in which case, off you trot and enjoy your debt free twenties).
This sounds like a lot of money and it is a lot of money. But in terms of debt, it is piffling. When students complain about student debt, they forget that it is almost certainly the cheapest and smallest debt they will ever owe. You think £20,000 is bad? Well, compare it to a £200,000 mortgage. £20,000 will barely buy you a new family car. By the time you’re thirty, the debts you enjoyed as a student will be utterly inconsequential compared to the mountain of debt you will be under if you own a house.
Not only is the total quite small, but the terms of the debt are the most favourable you will ever get outside of a mate lending you a tenner in a pub. The interest is linked to inflation, which means that in ‘real terms’ – i.e. the value of something, like a basket of shopping – it’s practically interest free. Sure, you’re paying more money, but that money is ‘worth’ less, and the debt stays the same.
People are still getting used to the idea of paying fees, and that higher education is not the free ride it once was
If you won’t take my word for it, listen to Martin Lewis, the finance guy off the telly who sticks up for viewers when Ocean Finance or Carol Voderman try to repossess their homes. Lewis says: “Student loans are one of the cheapest forms of long term debt possible.” And Lewis is king. So there.
So why does everyone get so hysterical when people talk about tuition fees being raised? The first reason is that tuition fees have not been around for very long. ‘Top-up’ fees – a lovely euphemism for ‘bigger’ fees – are even younger. Thus, people are still getting used to the idea of paying fees, and that higher education is not the free ride it once was.
The second is the idea that higher tuition fees will price poor potential students out of a degree. This, however, is nonsense. Student debt is not up front. You pay it upon graduation when you are earning over £15,000 a year. This is quite a low threshold, but remember: this debt is not an expensive one. If you earn £16,000 a year, you will pay back £90 a year. That’s less than £2 a week. When you earn £20,000, you will pay back £450 a year. That’s £8.50 a week, when you’re earning close to £400 gross. Being poor before you come to university has nothing to do with it – it’s how much you earn afterwards that counts.
The hysteria that surrounds student debt and tuition fees is thus largely down to ignorance of how the system works. If people understood that a) this debt is tiny compared to other debts you will accrue later in life, and b) it’s a very good value debt, then much of this controversy would die down. Indeed, if more students knew how to be savvy with their finances, 1 in 10 bursaries would not be going unclaimed.
But none of this solves the problem of living costs, which – once you’ve paid for accommodation out of your maintenance loan – you generally have to foot yourself. But this one’s an easy problem to fix: get a job.
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