Good Financial Planning Could Reduce Student Debt

Sept. 17, 2009 - PRLog -- Responding to a report that found that 24% of students in the UK expect to graduate with over £20,000 of debt, Debt Advisers Direct has advised students that with the right financial planning, the amount of debt they take on can be reduced.

The company added that students should avoid taking on debt (i.e. any debt outside their regular student loan) wherever possible, as this could increase their risk of debt problems in the future.

Research by the Association of Investment Companies (AIC) looked into the financial expectations of UK students. It found that 24% thought they would leave university with more than £20,000 of debt - although the picture varied between countries.

In Scotland, Scottish-born students are not required to pay university tuition fees. This is reflected in the AIC's figures: only 26% of Scottish students expected to take out a student loan, compared with 55% across the entire UK.

A spokesperson for Debt Advisers Direct commented: "Debt is a big concern for many students. The introduction of top-up fees in recent years has added a significant amount to the debt many students will be expected to repay once they graduate.

"However, it's very important that we distinguish between student debt in terms of an official student loan, issued by the Student Loans Company (SLC), and other forms of debt.

"Government student loans are designed to be paid back once the student graduates and is earning enough to meet the threshold - currently £15,000 a year - and only as a small percentage of earnings above this amount. In that respect, a student loan is not likely to cause significant financial hardship.

"However, students who have borrowed money in other ways could find themselves in more difficulty. Things like personal loans and credit cards, for example, usually require regular repayments and tend to carry higher interest rates. This is not ideal for students, who usually survive on a relatively low income.

"The risk is that the more debt students take on, the more likely they are to have trouble meeting their repayments. For that reason, we advise students to steer clear of taking on additional debt wherever possible."

The Debt Advisers Direct spokesperson added that while most students experience financial difficulties at one stage or another, there are other things they can do to improve their situation.

"There is plenty of advice available, both online and from expert financial advisers, on ways for people to manage their finances well. For example, we have just released a guide on ways to cut back without compromising their social life  - which is particularly relevant to students.

"The key is good financial planning. Students should look to budget their money well, avoid impulse purchases, and above all plan ahead - simple steps like only taking out a small amount of cash at a time can often make all the difference.

"For people who do find themselves struggling with debt, it's essential that they speak with a professional debt adviser to discuss their options. Left alone, debt can grow very quickly, so it's very much a case of the earlier, the better."