- Poor student loan debt management causing young adults to delay major life events
- Half of all graduates (51 per cent) who have a student loan are unsure about how much they contribute towards their debt repayments each month
- According to student advice portal Save the Student, 2 in 3 students don’t understand their loan agreements – including the interest they’ll have to repay
- Financial technology company Intelligent Environments calling on banks to work more closely with the Student Loans Company to provide graduates with the means and advice to save whilst paying their loan
- CASE STUDY: Exeter University graduate Christopher Bateman has racked up more than £40,000 in debt from tuition and maintenance student loans, something that he says will postpone his ability to save and prevent entry to the property ladder
London, September 29 2016. Student loan debt is holding graduates back from enjoying major life events, new research from financial technology company Intelligent Environments has found. High levels of student debt and not knowing how much needs to be paid off each month to clear the debt is causing graduates to delay or simply miss out on key financial moments such as buying a car or a house, or saving for a pension.
The research found that 41 per cent of adults that have previously had student loan debt said the debt delayed them saving for a mortgage deposit. Additionally, over a third (37 per cent) believe that having this debt delayed them from starting to save for a pension, and just over a quarter (26 per cent) said that it delayed them from making major purchases, such as buying a car.
The survey also found that the effects of paying off the student loan debt weren’t purely financial, as almost half (44 per cent) of respondents said they found the process stressful. This could be down to a lack of clarity on total debt and monthly repayments, with just over a quarter (26 per cent) saying they weren’t aware of how much they needed to pay off each month. This problem is intensified by the fluctuating interest rates, which work as a sliding scale that starts at 1.6 per cent for those earning £21,000 but can go up to 4.6 per cent when earning £41,000 – with no real benchmark in between. The problem is such that according to the Telegraph, a graduate with £40,000 debt would have to earn over £43,000 a year to even begin to cover the annual interest.
According to almost half (42 per cent) of respondents who have now cleared their student loan, paying off their debt took much longer than they expected. Additionally, a similar amount (51 per cent) of respondents who currently have student debt are unsure how much they will need to pay each month towards their loan.
Intelligent Environments is calling on banks to better collaborate with the Student Loans Company to help inform graduates of their total monthly and yearly repayments, including the level of interest they will have to pay. The Student Loans Company should be enabling better communication with banks about how much their customers owe. Simultaneously, banks need to be providing graduates with advice and access to tailored digital budgeting tools to enable them to save for the future whilst repaying their debt in a timely manner.
When surveyed, almost half (49 per cent) of respondents who currently have student debt said they would like their bank to introduce tailored digital budgeting tools to help them keep better track of their finances while paying off their student loan. Additionally, half (50 per cent) would like advice from their bank to help them save while paying off their student loan, and 43 per cent would like advice from their bank on how to pay off their student loan effectively.
David Webber, managing director at Intelligent Environments, said: “According to data from the Student Loans Company, students in England now leave higher education with an average debt of £26,640, compared to a much lower £16,160 just five years ago. Rising levels of student debt, coupled with rising cost of living, mean graduates are being held back from big financial life moments such as buying cars, houses and starting families, because they simply don’t have the tools or information to manage their debt effectively.
“As we’ve seen from our research, there is a need from the Student Loans Company and banks to work together to support graduates in managing their student loan repayments effectively. At the moment the lack of clarity in how much repayments will be from one year to the next, exacerbated by changing interest rates, is making it really tough to save for big purchases such as a car, house or to set aside money for retirement.
“They are asking for their banks to put plans in place to help them pay off their debt effectively. Digital tools specifically present an excellent opportunity for this, helping young adults visualize all their income and debt in one place, enabling them to pay their dues whilst living their lives to the fullest.”
CASE STUDY: 23-year-old Christopher Bateman graduated from Exeter University with a degree in business management, and £40,000 in maintenance and tuition student debt loan. He now works in management consultancy in the City and has started repaying his debt, however he doesn’t know how long it will take to pay off, or how much he needs to contribute per month, in order to clear the debt. One of the toughest things for Christopher has been the lack of clarity about the exact interest rate being applied to his loan, which is implemented on a broad sliding scale, based on his salary.
He said: “The hardest thing about student debt is that once you start repaying it, the interest very quickly racks up. I have a manageable amount taken out of my salary each month by the Student Loans Company, but the amount they take doesn’t even cover the interest, so in the end my debt is actually increasing – something that is very disheartening.
“I’m not ready to get a mortgage just yet, but when I do, I’ll have an important choice to make – do I forgo the mortgage to pay off the loan, and rent like a lot of my friends, or do I simply take the mortgage out and accept the student loan as a tax for having gone to university, and eventually have to pay off a huge amount?
“What’s frustrating is the uncertainty over the potential level of interest I’m going to have to pay – I have no idea what the total amount will be, and am unsure of the best way to pay it off. I’d love more information to be able to manage my finances in a wiser way – and something that would really help me is if my bank worked with the Student Loans Company, for example, to provide me with a long-term tailored digital money management plan to help me save, whilst also repaying what I owe. I would feel more secure in my financial and personal future, knowing someone was there to guide me through the saving and repayment process.”