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08.06.2017

Payday Mayday: Student Debt & Short-Term Loans

Students in the UK have been turning to ‘payday loans’ in recent years to make ends meet

A study by the Sutton Trust Fund carried out last year found that debts accumulated by English students are the highest in the English speaking world- topping even the famously exorbitant fees charged by Ivy League colleges in the US. English graduates, the study found, accumulate an average of £44,000 of debt, versus the £20,500 owed by their counterparts across the Atlantic.

However, according to the Institute of Fiscal Studies, around 70% of 2015’s graduates will never repay the full amount, whilst Scottish students studying at home have enjoyed free university education since 2008.

£44,000 is a scary figure, but since paying back this loan is income-assessed and manageable, it’s hardly the most pressing financial issue that students face. What plays on the minds of English and Scottish students alike, though, is covering basic living costs.

Despite their reputation for hedonism, being able to afford rent, not booze, tends to be the biggest worry amongst undergraduates. Student rents rose by almost a quarter (23%) between 2009 and 2016, according to figures from the National Union of Students (NUS).

This means that even those entitled to the highest possible maintenance loan will spend a staggering 85% of it keeping up with rent payments, leaving only scraps to cover other essentials like bills, food and books. The NUS also found that 50% of the undergraduates they surveyed ‘regularly’ worry about meeting basic living expenses.

This dilemma has provided fertile ground for a crop of ‘payday loan’ companies to spring up- presenting themselves as an ideal way to plug the gap. The NUS study found that 3% of students admit to using these types of loans to meet their needs. Smart Pig in particular, a payday loan provider which deliberately presents itself as ‘student friendly’, has come under fire for targeting vulnerable undergraduates.

Their ads appear on beer mats and sandwich wrappers, promising a quick and easy way to tide customers over to their next loan instalment. The company has been reported to the Advertising Standards Agency for its misleading campaigns, which often fail to mention the broker’s astronomical interest rate of 1,089% APR.

Such companies are savvy when it comes to exploiting students, launching their campaigns towards the end of academic terms, when their target audience, who typically receive their loans in irregular lump sums, begin to struggle.

In many cases, the debt incurred can be debilitating, and have a serious impact on mental health. One student, who was unable to make ends meet despite bouts of part-time work and a maintenance loan, racked up £6,000 worth of debt through such companies.

Speaking anonymously to the online magazine, VICE, she confided that her sleep was severely affected by the ‘threatening and harassing’ phone calls and letters she received, sometimes late into the evening, demanding repayment. The fact that students have been driven to using these services came to the public’s attention most shockingly following the suicide of 21 year old Courtney Mitchel Lewis in 2014.

Although it would be short-sighted to blame his death on payday loan debt, the anxiety caused by the debt he had accumulated through these companies has been cited as a contributing factor.

Using payday loans is never recommended for students. Their clever marketing campaigns can, as Smart Pig have shown, give them the appearance of a ‘no-strings-attached’ way to deal with irregular income, but the long-term consequences of being unable to repay can spiral out of control, thanks to their incredibly high interest rates. Fortunately, alternative solutions are out there. Most universities offer some form of Hardship fund- a loan or bursary offered to students in times of financial difficulty- as well as on-campus debt advisors.

Alternatively, student current accounts usually offer free overdrafts. Whilst being overdrawn is never ideal, alleviating the need to pay extortionate interest is a massive bonus. Student or not, payday loans may not be the quick fix they tend to present themselves as, and if in doubt about using one, or current debt, it’s always best to speak to an advisor- through the Citizens Advice Bureau or a private provider.

The issue of student debt has edged its way into the news once again recently, as Labour party leader, Jeremy Corbyn, promised to completely scrap tuition fees from 2018 onwards, if he is elected Prime Minister in the upcoming general election.

The Green Party further proposed that all existing student loan debt- currently worth £71 billion in total- be written off. These proposals seem to demonstrate awareness of the issues facing students in the UK, and will hopefully spark further assistance, allowing those who are struggling to kick the habit of funding their studies with high-risk, short-term loans.

If you need more information about the options available to you in dealing with your debt, you can always speak confidentially with one of our friendly advisors on 0808 2085 198.