Student debt escalates

November 1, 2006 By Matthew Paulson

The cost of attending a university according to government figures is as follows:

£4,125 per year in course costs (such as tuition fees)

£6,897 per year in living costs (including basic living requirements, household costs, course and non-course related costs such as travel and entertainment)

To show just how much the cost for today’s students has escalated in recent times we need only compare the average final year debt of a student graduating in 2004 (£8,666) to the £15,000 anticipated for 2007 - just 3 years later.

Having graduated students will unfortunately have to face up to the prospect of paying off this pretty substantial debt. There’s no guarantee however that just graduated students will get a job straightaway, add to this numerous other possible financial responsibilities - rent, loan repayments possibly even a mortgage and paying back debt could seem a daunting task.

Graduates should consider setting up a meeting with their personal banker or account manager. This will give them a chance to talk about their finances, their future prospects and plans, and possibly sort out a plan for repayments that will allow them to maintain a reasonable standard of living and pursue their career, whilst paying off their student debts.

If the bank cannot or will not offer an affordable repayment plan, then there are other steps to be taken before seeking more drastic measures.

In this event, a graduate could contact one of the three major credit-watching bodies - Equifax, Experian or Creditcall - and get a copy of their credit rating. Thanks to the Consumer Credit Act of 1974, it is now a consumer’s right to obtain a copy of their credit rating.

These reflect a person’s financial history, taking into account things like loan and bill repayments and their record of debt repayment.

A score is assigned that can then be taken into consideration by lenders when assessing the viability of a borrower. Consumers proven to be high-risk stand a greater chance of being refused financial products like loans, credit cards and mortgages. Even in the event of a successful application there is a good chance they will be required to pay higher interest rates.

If the graduate has credit card debts on their credit score, they are entitled to offer their version of events, which may hold sway with certain loan applications in the future.

Graduates should also keep in mind that being in some form of employment will probably cause banks to view them more favourably and may even agree to another meeting to arrive at a positive resolution for the situation; getting a temporary job whilst planning for the future is often a prudent measure.

The other route available is to take a further loan to pay off the existing one. However, this may be harder than it seems with the affected credit score having an effect of its own; lenders may not be so enthusiastic to offer a loan to someone who, apparently, has little or no means of meeting repayments. If you are approved however a number of banks such as Natwest offer very competitive graduate loans.

If you do decide to take out a further loan it’s important to consider whether you can comfortably afford to keep up payments - try using one of the many online loan calculators - - you can find them on lenders websites, the Asda Personal Loans websites for instance.

It’s also a good idea for graduates to make sure they’re getting the best possible deal on their current account. Graduate accounts generally offer particularly attractive interest free overdraft facilities, in some cases up to £2,000 in the first year after graduation. Some banks offer considerable better deals than others however so don’t hesitate to assess your options and switch to a different bank if yours isn’t competitive. Currently the best deals available appears to be the RBS graduate current account which offers £2000 interest free for the first year with year two and three at £1500 and £1000 respectively.

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