Student Debt
The Good, the Ok and the Ugly
The real truth about debt is that the majority of students are sensible about it, get on just fine and end up better off in the long run. However, not all debt is equally good!
Good Debt – Student Loans from the Government
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Very, Very low interest rates - Only repaid when earning £15,000 a year or more and based on ability to pay
- E.g. A graduate earning £17,000 a year would pay back £15 a month
- If they’re not earning, they don’t have to pay
The government loses money on these loans to make sure they never increase in real value. That means the ‘debt trap’ can’t happen. It will also not affect their ability to take out a mortgage.
See also: Moneysavingexpert: Student loans
OK Debt – Student Accounts from Banks
- These have free overdrafts
- Sometimes other benefits – free rail cards, discounts, etc
Banks will increase the free overdraft amount year on year. They will expect the overdraft paid back between 1 and 3 years after graduation. After that, they will start to charge interest. Check the terms before signing up. Banks lose money on these accounts. The idea is to win future customers who will be earning well.
See also: Moneysavingexpert Guide UCAS guide Uswitch Guide Moneyfacts Comparison
Bad Debt – Student Credit Cards, Store Cards, etc
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High interest rates, quick repayment, terrible way to borrow… avoid!
The students you hear about who got into trouble borrowed this way. It will only create problems. If students are having money problems, the college or uni can help if they contact student support.
Credit Card companies make a lot of money on these debts.
Problems or Worries?
If they have any problems at all, the university or college will have money advisors who can give advice and free emergency money to help if students are struggling. The Advice Guide - Hardship.