It is undeniable that anxiety surrounding student debt is a problem that faces both current students and graduates. A recent survey by NUS insight discovered that 36% of students worry so much about their finances that its affecting their mental health and 64% worry about finances all the time or very often. It is important to clarify that when students worry about money it is not always about student loans, the rising cost of living puts a strain on personal finance at university and things like overdraft debt are commonplace. There is however some evidence showing that the rise in tuition fees since 2012 and student mental health issues are linked. A guardian article in 2016 used evidence gathered by Mind to link a 28% rise in the use of counselling resources at Russel group universities to raising fees to £9K. While there are undoubtedly other factors behind this rise (see here) it is safe to assume that students are concerned.
This problem seems to continue beyond university with financial worries a key contributor to the recent growth of post-uni depression, the full total of student debt weighing heavily on many graduates’ minds. Having graduated this year it is interesting to see how many of our peers are already worrying about their student debt and the prospect of having to pay back such a large sum.
But should they be worried?
What is the financial situation facing the average graduate in 2019? According to the Institute of Fiscal Studies the average student will leave university with over £50,000 of debt. This figure is also subject to interest so will rise by at least 2% every year depending on your current salary (it is quite complicated, see here for more detail). With huge and growing numbers it is easy to see why this is a stressful issue.
But what really is student debt? It is often argued that calling it ‘debt’ is actually very misleading as it confuses it with personal debt and they are two very different things. The fact is that student debt is far less pressing than any other type of debt. For example, you would be obliged to pay back £50,000 of credit card debt regardless of your current financial situation or job prospects. This sort of personal debt is also detrimental to your credit score, affecting your chances of getting a mortgage or personal bank loan. A student loan does not affect your credit score and is only paid back based on your current earnings. This means that until you make £25k you pay nothing back, after that you will pay 9% on any extra earnings. Here are a few scenarios to illustrate the reality of this:
So, repayment is based on what you make, if you earn more you pay more… but you ultimately still earn more! Furthermore, research shows that there is a considerable wage premium attached to graduates, so getting a degree will usually unlock greater long term wage potential. A Money Supermarket survey conducted in 2018 found that those with student debt spent the lowest average time in personal debt;
‘this suggests student debt could be considered ‘good debt’ as it ultimately facilitates stronger financial prospects in the long term’.
It is for this reason that many experts prefer to call student debt a student tax as it operates far more like an income tax than a personal debt, the more you earn the more you pay because you can afford to.
But the way that student debt stands out most distinctly from other forms of debts is that after 30 years it simply disappears. In fact, it is estimated that over three quarters of students graduating today will never pay back the full amount.
We don’t think therefore that you should worry about your student loan. But why does the fear of student loan repayments perpetuate, when all things considered it is one of the best types of ‘debt’ you can ever get? Perhaps the reason for this is that student loan debt is tied to other anxieties, both when at university and after graduation. There is no denying that personal money issues at university can be immensely stressful, but this should be considered separately from student loans. There is no denying that struggling to find a job after university can be immensely stressful but a student loan makes no difference to this, (apart from potentially opening up more opportunities). A degree will not guarantee you a job, but without a job earning more than £25k, student loan debt is irrelevant.
Another problem is the sensationalist journalism which surrounds student loans. Emotive headlines are all too common and paint a misleading picture of the nature of student debt. The description of student debt as a ‘black hole’ could not be more unhelpful. Even well-meaning journalism contributes to this negative depiction of student debt. For example, a recent Huffington post article linking student debt to mental health issues describes student loans as ‘debt slavery’ which causes students to start working life with a ‘millstone around your neck’. Although ultimately well-meaning, this brazen article supports the negative characterisation of student debt which only exacerbates student anxiety surrounding the matter.
It is important to note we are not arguing about whether the £9k fees are right or wrong- the fact is that students are facing this level of debt so what can be done to help reduce the anxiety surrounding it? If you agree with us that student debt is a ‘good debt’, the answer lies in better financial awareness. Part of the anxiety is based around uncertainty. When faced with large sums and little understanding of repayment terms, it can easily become a cause for concern for both former and current students. It is an anxiety that thrives with uncertainty. Increased effort from universities and schools is needed to educate students on the finer details of student loans, indeed increased financial education in things like credit cards, overdrafts or budgeting techniques can only positively impact student welfare, reducing the chances of students making poor personal financial decisions that can negatively impact their mental health.
So, although we don’t think that students should be stressed about theirs loans – we understand why they are and believe an increased effort to inform students of the realities of their loans can only have a positive impact.
By Bede Rauh and Will Jones,
Co-Directors Thrive & Survive