Student Loans In The UK
There was a time not very long ago when, in the UK, student loans (for studying purposes, that is) were not something a young person had to think about. Education was free up to university level, and that was it. Grants were available, administered by local authorities, to meet basic expenses while away at university, though if a student wanted to live at a higher standard than the grant covered, they may get supplementary support from parents. Rarely would they take out a loan of any significant amount, and there were no massive study fees to worry about.
While many UK students were probably aware of the high cost of going to university in the US, and the need for American students to take out large student loans in order to get through their university studies, there was little they themselves had to worry about in terms of debt. Of course, most would complain about not having enough money to live as they would like, but by and large they were not studying in parallel to a mounting debt.
Since about 1990, though, things in the UK have changed on the student finance scene. The government has increasingly sought to recover the costs of studying at university, and charges were introduced. As figures from the Student Loan Company Ltd reflect, between 1991 and 2005 the total value of student loans has increased dramatically, from a mere £69.9m in 1990/91 to £2786m (provisionally) in 2004/5.
The Impact of Student Loans on Consumer Debt
The consumer debt problem in the UK has increased inexorably for several decades now, including through the period when schooling and university study was basically free to students. So, how will the introduction of student loans affect the overall consumer debt problem?
Due to the social nature of the rise in consumer debt, it is difficult, if not impossible, to separate the different causes. Ignorance, greed, lack of budgeting training and knowledge, social pressures, irresponsibility, peer pressure, wall to wall advertising of loans and credit cards, and other causes, all contribute to the rising tide of problematic debt.
Student loans have the potential to affect the debt picture amongst consumers in both directions:
Student Loans as a Training Ground in Consumer Debt Management
In theory, a young student having to take on, and be responsible for, a substantial loan to finance their studies could find the experience useful training for even greater financial responsibilities later on. Managing their student budgets while away at university could be a useful introduction to the world of adult finance. No doubt there will be some students who do learn positively from the experience, and use it as a foundation for their future home finance management. However, given the British consumer's propensity to over borrow and get into serious debt, it is probably too much to expect that the student loan experience will make any contribution to better budgeting.
Student Loans as an Encouragement to Get Into Debt
When student loans were first introduced in the UK there was a public outcry. Everybody was used to free education, and thought that it should continue to be free, even up to university level. The "free" tradition had given all young people equal chance to get their university place, and the students from poorer families, the argument went, should not be disadvantaged now by having to pay to go to university. There was also much criticism that student loans encouraged debt, and that students would leave university with a debt level which was like a noose around their neck.
The reality is that as soon as a student takes out a loan, they are in debt, and how well they handle that will depend on their temperament, upbringing, education in financial matters, ability to resist peer pressure, and basic common financial sense.
Young people are especially prone to peer pressure, so as the difficulty to repay the loan mounts, and they see others spending money on trips abroad and other luxuries, the temptation to take out more loans and use credit cards mounts. The weaker students will happily give in to the temptations, and thus build up severe debt problems for the future.
When it comes to repaying loans after the university course has finished, another factor quickly comes into play: employment. If a student immediately gets a well paid job, then he or she may be able to keep their debt situation under control, with the right attitude and sensible budgeting. However, if the student cannot get any job at all, or a poorly paid job only, then their situation could deteriorate rapidly.
Not all students are able to get employment in the type of job they want. If they have been studying for a commercially obscure degree, which brings with it no job prospects, then that student loan may well have been a burden rather than a key to a prosperous future.
It is almost certain that student loans are now a permanent feature of the consumer scene in the UK. The recent announcement about their centralization at the Student Loan Company Ltd (July 2006) shows the present government are looking to improve the efficiency of their administration, rather than discontinuing them any time soon. The impact they have on consumer debt in the long run remains to be seen.