Thousands of students will have found out where they will be going to college this week as the deadline for institutions to submit offers has passed.
Many will wonder how they will finance their university experience, with nearly £20 billion in student loans given out each year to around 1.5 million students in England.
But new research shows that taking out a loan to fund a degree could cause students to take on more debt after graduation, taking on average nearly twice as much credit as someone without a degree.
Debt: College graduates said using a student loan to fund their degree made them more comfortable borrowing money
Nearly half of college students and graduates said getting a student loan made them more comfortable with other forms of borrowing, according to new research from the credit reference agency Equifax.
Two in five also said that borrowing funds for college made them more likely to borrow again in the future.
Between the ages of 18 and 40, people who have attended university have an average of £12,445 in debt compared to those who have not attended university, who have borrowed an average of £7,105.
This excludes the burden of a student loan, which currently costs up to £9,250 a year for tuition fees. Maintenance loans can be up to £12,667 for those studying in London.
Last month, the UK announced major changes to student loan terms which are expected to increase the debt burden of young graduates across the UK.
These include a ten-year increase in the repayment period for new entrants next year; a freeze on the income threshold to which graduates reimburse since 2012; and changes in how this threshold increases over time.
Interest rates on student loans taken out after 2012 are also expected to rise from 4.5% to 12% for current students and high earners starting in the fall.
Students applying to UK universities should hear from UCAS about their acceptances this week
All of this means that graduates entering university this year will have to repay around £400 more each year.
That figure rises to £750 for those applying to university to start in 2023, who could pay off their debt well into their 60s.
More than a third of graduates aged 29 to 40 who have benefited from much lower tuition fees, if any, believe the changes are unfair and will deter some people from attending university.
And nearly half believe these changes will create a generational gap between those who pay and those who don’t pay the higher fees.
Equifax research indicates that not only are students and college leavers borrowing more, they are also more likely to use a range of forms of credit.
Nine in ten of those who attended college have some type of credit, compared to seven in ten of those who did not.
Graduates are also more likely to have a credit card, mortgage, overdraft, loan, or use Buy Now, Pay Later services.
Paula Roche, managing director of Equifax UK, said taking out student loans makes graduates more used to taking out bigger forms of credit when they finish school, but that’s not entirely a bad thing. news for graduates.
She said: “Research tells us that going to college and having a student loan makes people more likely to use other forms of credit, have their credit report reviewed and to be in tune with their finances in general.
“But there are signs that this greater exposure to the credit market is also driven by greater familiarity with, and even desensitization to, borrowing during college.
“Whether it’s credit cards or car financing, using the credit system and building up a credit history is one of the best ways to establish a positive credit score, which could give graduates an extra edge when applying for a mortgage later in life.
“Subscribing to different forms of credit is not problematic when managed responsibly and repaid on time.
“It is important that all young people understand the different types of credit available and have a clear view of how their financial history may influence their ability to access it.”
Need more financial education
The study highlights the need for more financial education during school age, with a quarter of respondents saying they did not receive any support or education until they reached the age of 18 for help manage their finances after school.
Levels of anxiety related to money management were a concern for all young people in the study, regardless of background, but it appears student loans may be contributing to the problem.
Credit confusion: Half of college students have never seen a credit report, saying they don’t know what it is or how it works
About 64% of those repaying a student loan said managing their money caused them anxiety, compared with 58% of those who did not receive a loan and 57% of those not attending college. .
A contributing factor to young adults’ financial anxiety could be a lack of understanding of their financial history.
One in five young adults said they never checked their credit report, and that number rose to half among those currently in higher education.
Almost half of those who didn’t said they didn’t even know what a credit report was.
Roche continued: “Whether someone goes through higher education or not, 18 to 22 is a critical age, where young people will polish their CVs and prepare for the world of work.
“So it’s a little worrying that a third of people in this age bracket have never checked their credit report, their financial CV, and for almost half of this group it’s because ‘they’ve never heard of it.”
“Education is absolutely imperative if younger generations are to feel empowered to manage their finances throughout the early stages of life.”
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