A £1 Trillion Debt Timebomb – Student Loans

Fears are rising that student loans are having a damaging effect on the physical and mental wellbeing of students, not only when they are studying, but long after they graduate and impact on everything from the type of careers people choose, to the type of home they live in, to even when they buy a home and start a family.

There is also a fear that the British public may be getting tricked into believing that the current system of financing students, means it is not a cost that the public purse has to continue picking up. However, there is reason to now believe although individuals take out student loans, when large numbers of them are not paid back, they will return to being a public debt that future generations will have to pay.

Rising Mental Health Problems, the Result of Rising Debt

The National Union of Students in Scotland has claimed the increasing number of students seeking help with their mental health is because of debts levels.

The claim was made as Scottish Universities reported the number of students seeking help for mental health problems has risen from 4,541, to 8,180 over the last four years, representing an increase of 80%.

The warning also comes at a time when levels of student debt in Scotland, although lower than elsewhere in the UK, are now rising faster than they are in England, Wales, and Northern Ireland.

The Student representative body claims although there are other factors contributing to the increased number of students seeking help, such as increased awareness of counselling services and a rising student population, the primary reason for the increase is debt.

With increasingly more young people choosing to go to University, often from lower income families, which are not always able to provide financial support, many students are now finding themselves having to choose between getting more in debt or working more hours in part-time jobs to get through their courses, particularly during exam times.

Joining in the debate, experts from the Centre of Global Higher Education have also recently warned students loans are having a serious and detrimental effect on the lives of students. The body which is based at UCL Institute of Education and the University of Michigan, have published research they have carried out over the last 20 years across the USA and England and found that student loans can harm people’s physical and mental wellbeing and their finances over their lifetime.

Graduates with large student loans are less likely to be entrepreneurial 

Large student loans can delay people buying their own homes, they found, and when they do buy them, they tend to buy lower value properties. They also found student loans impact on people’s career choices and can even impact on retirement plans, by reducing the ability of graduates to save. They also found people with large student loans were less likely to be entrepreneurial and start their own businesses.

Confirming the concerns of the National Union of Students, they also found large student loans were inextricably linked to student’s suffering mental health problems.  People they found were more likely to suffer financial distress throughout their lifetime and, in the case of women, they discovered student loans can result in them delaying getting married and putting off having children to later in life.

The situation they found was even worse when people did not graduate.

Speaking about the research Professor Claire Callender of UCL said:

“The number of students relying on student loans to pay for their higher education is constantly rising, as is the amount they borrow.  Yet we know little about the long-term consequences of this for society and individuals”

 “What we do know from current research is concerning. Student loan debt seems to have a harmful effect on many aspects of graduates’ lives once they leave education”.

The Student Loan Timebomb

However, it is not just the NUS that is concerned with the rising levels of student loans. A powerful UK Parliamentary Committee has also raised its concerns and reported that the level of student debt in the UK could rise to £1 trillion over the next 25 years.

The House of Lords Economic Affairs Committee has attacked the current system in England and Wales of tuition fees as “deeply unfair” and accused the UK Government of “accounting tricks” which conceal the real cost of higher education, which they claim will result in the accumulation of huge debts that future generations will have to pay.

The Committee has also called for immediate reforms to student funding, such as cutting interest rates on repayments and restoring grants for disadvantaged students.

Speaking about the work of the Committee, former Conservative Minister, Lord Forsyth said:

“The thing that shocked me…was that I had not understood that by moving to a system of funding through loans, because of the accounting methods of the Treasury, it was possible for George Osborne to appear to increase funding for higher education by £3 billion but at the same time cut his deficit by £3.8 billion”.

The reason being is although student loans do not currently show as a public debt, this will change when much of it is written off in 30 years’ time, when people cannot pay off their loans.  In the meantime, the “accounting trick” makes UK public finances appear healthier than they are.