How to Avoid Student Debt

Written by Stuart Carmichael, Chief Executive at debt advice charity Debt Support Trust

You’ve taken the decision to become a student and further your career opportunities, but financially it can be a complicated process. You’re being offered credit for the first time in the form of credit cards and “free” overdrafts from your local bank to help you meet your educational goals. However, it’s not uncommon for students to leave further education because they can’t afford the associated costs of studying.

It’s recommended from Universities and Colleges that students don’t work more than 16 hours per week so they can dedicate themselves to their studies. Other sources of income include a student loan and potentially a bursary but these don’t necessarily cover the cost of living.

Sadly, however, students are not entitled to housing benefit, but they are able to get a rebate on their council tax. 

Living at home and studying locally can save valuable pounds on rent and other household expenditures, but this isn’t always possible. If parents aren’t able to offer financial support then students may have to work and study simultaneously. 

There are a few tips we can offer students to help them manage their finances and avoid getting into debt. 

Common Student Debt Problems & Advice to Avoid

Its important students are aware of the common pitfalls they may face on their way to achieving their qualification. There are solutions and options to resolve all of these financial issues.

Overdraft: Banks and building societies will offer students an interest free overdraft, typically called a Student Overdraft, where money is offered without any interest being charged. The pitfall is that you can access thousands of pounds and once you stop studying your interest will commence. Students entering the world of work will then owe money to their bank. 

Furthermore, some banks have been known to lend £1,500 to a student and then reduce the overdraft with limited notice. Students will rarely have the money available to repay the bank, so they will be charged an unauthorised overdraft fee.

Credit Cards: It’s standard procedure for many banks to send credit cards to people on their 18th birthday. It’s often too tempting for students, especially on a budget, to refuse the extra credit facility. While a credit card can improve your credit rating, being unable to repay the minimum payment could lead to debt collectors demanding money.

Council Tax and Rent: Students don’t pay council tax but if they rent privately with flatmates who work, then they may be asked to contribute towards it. Student accommodation could help with this problem.

Payday Loans: Some students who work part time have found themselves trapped by payday loan debt. The interest and charges can make it difficult to repay the original loan, especially for students on a low budget.  Recent payday loan adverts have targeted students with the allure of instant cash, however with annual interest rates in excess of 4000% these can be difficult to repay. Payday loan companies can be among the most difficult to negotiate a repayment plan with too.

Bursaries and Student Loans: Students must finish their course or they will have to repay their bursary. One of the most common problems we hear from students is that they have used their bursary and loans for socialising, which has led to not having enough left for funding their course. 

What Should You Do If You Get Into Debt?

A debt problem which isn’t resolved will only grow and become a bigger problem. Debt can affect a student’s ability to focus on their studies as well as their personal relationships, so seeking debt help is imperative.

Regardless of your financial situation, it’s good to know what your disposable income is each month. This is the money available after you have paid all your essential bills and living costs. So, start by considering your income monthly – bursaries, student loans and employment. Then, look at your expenditure, for example, what is you rent, electricity, gas, travel and other costs each month? When you minus your income from your expenditure you will have your disposable income, which can be used to service existing debts, saving and for entertainment.

A local citizens advice bureau or a debt advice charity like Debt Support Trust can offer financial advice to resolve debt problems.  If you’re experiencing money worries then Debt Support Trust can be contacted on 0800 085 0226 between Monday to Friday. Alternatively, you can complete their debt test at www.debtsupporttrust.org.uk for immediate online debt help.

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