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/ 2 weeks ago /

 Article by Jessica Murray

Debut finds that 3 out of every 5 students don’t know how much their student loan is

Around one year after my graduation I got a letter in the post (Since it wasn’t from Hogwarts, I knew it must be bad news). Opening it I found I had a bill for well over £40,000. Now under any normal circumstances, finding out you’re in such a vast amount of debt would set alarm bells ringing. But seeing it was from Student Finance England, I wasn’t concerned. I’ve long known that it’s unlikely I’ll ever pay off my student loan before it’s wiped off after 30 years, especially with the added interest, so the details of my student debt have never bothered me.

Now, new research carried out by Debut has found that many students share the same view.  In fact 65% of university students in the UK admit to not knowing how much they owe, what their repayment terms are or what the interest rate is. This shows that a huge proportion of students are completely in the dark about how much they owe, whether due to their own disinterest or because of a major lack of transparency around the issue. But what does this mean for students and graduates, and is it about time we sat up and took notice?

Is it a debt, or is it a tax?

student loan tax

One of the reasons most students have paid little attention to the exact nature of their student loan is because they see it more as a graduate tax than an actual debt. There’s not much you have to think about – the money comes out of your account automatically every month, the amount only increasing in proportion to how much you earn. If you can’t afford to pay it, the payments stop. They’re never going to start reclaiming your furniture because of it.

And this has led many students to simply not care exactly how much debt they’re in, because it means little in reality. Debut CEO Charlie Taylor commented: “Less than eight years ago I was in the same boat, having just taken out a sizeable student loan, so I’m not surprised by these findings. Student loans have become a tick box – a requirement to get a degree today.” Most students don’t think about the reality of student debt, they just see it as a necessary evil in order to get a degree, and care little about the numbers and details.

It’s time to get interested in interest

student loan interest

However, what a lot of students don’t know about is the interest their loans are accruing. Interest was that thing my parents kept banging on about when I was first applying for student finance, but I honestly couldn’t have cared less about. If all my peers were in the same boat as me, we couldn’t all be getting ripped off surely? Wrong.

A report by the Institute of Fiscal Studies (IFS) showed that most students will be charged £5,800 in interest charges before they even leave university. Recent changes mean that interest rates on student loans now stand at 6.1%, 24 times the Bank of England base rate, which will only decrease when you graduate if you can prove you’re earning less than £41,000. Scary stuff.

Lily Smart, a History graduate from the University of Leeds, added: “I think the system is deliberately as opaque as possible for prospective students. I was not aware that the interest began accumulating as soon as my course started, when I could not possibly be paying it off, and I don’t think many people in my year were aware of this either.”

Simon Crowther, a Civil Engineering graduate from Nottingham University, wrote an open letter to his local MP on the subject last year, which went viral and was shared over 30,000 times – showing just how many people are in the dark over the issue. He told Debut: “When you sign up to a student loan, you’re too young for a credit card or mortgage, yet can sign up for a student loan – without seeing a bank manager or financial adviser.”

What do we get in return?

student loan minimum graduate salary

Like all good investments, we should expect a return for both the time and money we spend in gaining a degree. Debut has found that 66% of students aren’t sure that their investment in a degree will pay off, and 80% think there should be a minimum graduate salary.

2017 saw a decline in the amount of students taking places at university for the first time since 2012, and it’s no surprise when we’re expected to fork out so much money with little guarantee our subsequent salary will make up for it.

Of course, despite the costs involved, a degree has clear benefits. Debut CEO Charlie Taylor said “I’m surprised by the number of students concerned about the benefits of having a degree not outweighing the cost – every day I speak to the people hiring graduates at over 50 multinational firms, and it is clear to see that the opportunities are endless. The real issue is access, the very reason Debut exists, to bridge the gap between the employer and the student or graduate.”

While Debut is working to help students and graduates reach their full potential, and ensure the investment they make in their degree pays off with a top quality graduate job, students should be more aware of exactly how much student debt they’re in, and how much interest they’re accumulating. Only then will we be able to fight for a better deal.

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