Student Debt Matters

Why is student Debt a problem?

For those in the UK: did you know that, in the US, student debt is not dischargeable in bankruptcy? Did you know that it is not dischargeable in divorce. If your ex-defaults, you may be liable.

In the UK, until recently fees have been manageable but some of my students will still finish degrees under the old system and leave the University £30,000 in debt.

For reasons not of their making, one of my students will need to repeat a year on a new programme. This will result in perhaps £60,000 in debt when leaving University. This student is under the new fee regime.

What does this amount of debt (£30,000 to £60,000) mean?

In my neighbourhood, you can buy a semi-detached house for £65,000 and houses have sold as low as £52,000 since January of this year (2014). 

The Student finance website of the UK government has a calculator (here) that puts things in perspective. They give an example of taking 29 years 8 months to pay back a loan of £50,025. This will require £161,007!

Although somewhat dated (2007), this article (here) suggests a university graduate makes on average £160,000 more than someone without a degree over their working life. This is average, not the median.

What not to listen to?

... that you don’t have to repay until you are making over £21,000. You accrue interest during this period and, in honesty, many entry level graduate jobs do not pay this much. 

... that any unpaid amounts will be forgiven after many years. The interest rate is listed as the rate of inflation as given by the retail price index plus 3%. Just because the debt is written off after a period of time this does not mean you will not be subject to a debt burden for a long period of time. 

What to do?

Get into as little debt as you possibly can while undertaking your studies. If you can live at home, do so. Consider studying in other countries. Look into studying in Germany. If you are a very good student consider the US private universities. If you have genuine need for financial assistance, there are very good programmes to assist.

If you can skip a masters and go directly into a PhD do so. Never pay for a PhD. If you can not compete for a fully funded PhD, consider doing something else.

Finally, my students bravely charge into education because they want to learn and because they believe in the benefits of education. If you really love your subject and learning, be careful. If you are doing it for the economic benefits, be careful. On the face of it, it is a marginal investment. I never thought I would ever find myself saying that. Minimize the amount you borrow to improve the value of the investment. 

Please read this article (here): It inspired me to write this. Although it is from a US perspective, it points out some pitfalls of student debt.