Student debt - practice makes perfect

According to an article in The Telegraph last summer, thousands of students run the risk of bankruptcy each year after accumulating debts whilst at University and as many as 1 in 10 university students could be declared insolvent as a result of borrowing money to pay for increasing tuition fees and living costs.

The Telegraph article quotes the uSwitch.com price comparison website which suggested that students starting university in 2007 are likely to face total debts of up to £3.2 billion, which is three times the figure for 1997 while Push.co.uk, the university guide, claims that freshers inducted during 2007 will owe up to £21,000 by the time they graduate.

More worrying is that previously some graduates have actively sought to declare themselves bankrupt in order to avoid paying back their student debts. This is certainly not an easy option. Once adjudged bankrupt, your credit record will be affected for the next 6 years, you will find it hard to get a mortgage, hire purchase or overdraft agreement, you cannot borrow more than £500 on credit during the course of the bankruptcy without informing the potential lender that you are bankrupt, your bank account will be frozen and your assets may be seized and sold for the benefit of your creditors.

You should note that since 1 September 2004, student loans are now exempt from bankruptcy laws and so they will not be “cleared” if you declare yourself bankrupt. If you were made bankrupt before 1 September 2004 you may still have to repay your student loan. (If already bankrupt, the Official Receiver dealing with your bankruptcy will be able to advise you accordingly).

In 2006, the Liberal Democrat Shadow Chancellor, Vincent Cable MP, expressed his concern at the apparent underestimation of personal debt incurred by university students. The number of young people (those aged between 18 – 29) who have been declared bankrupt has been on the increase since 2001. In 2001-02 there were 21,530 bankruptcies where the debtor's age was recorded and of these 1,681 bankrupts were aged 18 - 29. However, the figures had increased to 34,852 and 6,520 respectively in 2004-05.

Young people appear to be particularly vulnerable to debt, according to Youth Information. While unemployment and low pay are major factors, tempting offers such as 0% finance on goods purchased and discounts offered by storecards play an important role.

The Debt Advice Trust recently reviewed a new Alliance & Leicester account aimed at people aged between 16 – 21 years old and suggests that banks may take advantage of the compulsive nature of young people, who are less likely to read the fine print on the terms and conditions.
Debt is increasingly a problem affecting young people and those starting out in their careers following a university education, although it should be noted that until you reach the age of 18 you are not legally responsible for your debts. It is therefore unlikely that you will be offered credit from banks and other financial institutions until you turn 18.

While credit has its uses it is important to stay in control. North Lanarkshire pupils are receiving advice concerning money management at school through a new debt awareness pack unveiled by North Lanarkshire Council at Dalziel High in Motherwell on 13 December 2007. It is designed to raise young people’s awareness about debt and help them make informed decisions about their finances in both the long and short term.

During a House of Commons debate on 27 February 2008, Sandra Gidley, Liberal Democrat MP, moved “that leave be given to bring in a Bill to require schools to provide education on personal money management; to make provision about advice centres on personal finance; to impose conditions on the activities of money-lending companies; and for connected purposes”. Sandra Gidley is concerned that our increasingly materialistic society is fuelling a growing debt crisis and is even impacting on our children’s behaviour. A survey of 14 – 18 year olds revealed that more than half are in debt by the age of 17 and 26% of those surveyed perceive credit cards and overdrafts as a way of increasing their spending power.

In Sandra Gidley’s view we need to tackle the problem at an early age and introduce budgeting and money management lessons in schools. After all, a school education should be about more than just subject knowledge. It should equip you with the skills to help you make a start in life once your formal education has stopped.

If you need to talk to someone about your debt, many Citizens Advice Bureaux employ debt counsellors or you could contact a free debt help line for advice on the various options to help you manage your debt.

Alternatively, the following sites have some useful information to help you manage your debt:

The Debt Helpline
Isle of Man Government – Golden rules of debt
YouthInformation.com
National Debt Line