Sunday, May 22, 2011

Student loans set credit card debt

The find is particularly shocking given that not all students opt to take out a student loan, as some are able to fund their studies via grants or scholarships or by using personal savings.

Students in the United States are being urged to avoid taking out huge college loans after it was revealed that student loans have overtaken credit card debt as the number one cause of financial worry.

This, coupled with the fact that credit cards are available to a wider array of consumers, is worrying.

Figures from the US show that since January 2010, its national Education Department has stopped going after defaulted loans of less than $45,000 (£27,729) through the Justice Department.

As of 2010, outstanding federal and private student loan debt in the US totalled just shy of $760 billion (£468 billion), and just 40 per cent of this amount is set to be repaid.

Similar problems could well be set to reach British shores in years to come, given the hike in living costs and the astronomical increase in university fees.

Only a few months ago, Freedom of Information request from the BBC learned that the total sum of the 20 highest student debts in this country topped the £1 million mark.

The biggest single debt currently owed to the Student Loans Company stands at a whopping £66,150.

The maximum tuition fee an English university or college can currently charge its students is £3,290 a year, but this figure will rise to£9,000 in September 2012.

And with the value of maintenance loans to help with living costs also set to rise – currently set at £5,000 a year, with students in London able to borrow more at £7,000 a year – student debts could reach £83,000 when the new system is introduced.

This means a student borrowing £39,000 for a three-year course could pay back more than double that amount in total.

While not all will opt to charge the maximum amount allowed, the vast majority if not all of English institutions are opting to raise their fees.

London Metropolitan University, ranked at the very bottom of the university league table, is planning to charge £9,000 for some courses.

The University of East London, ranked one place higher than London Met, is also planning to charge £9,000, as are Middlesex and Liverpool John Moores Universities. Other universities near the bottom of the ladder are planning to charge slightly less than the maximum – London South Bank is charging £8,450 and Bolton is charging £8,400.

This doesn’t mean students will get extra ‘bang for their buck’ either - universities in England are facing monetary cuts of 12 per cent before the funding changes are introduced.

Teaching and research funding is falling on average by four per cent, while capital spending is more than halved.
Financial aid counsellors at colleges or universities can offer advice to students who are still seeking financial aid assistance, but for the next generation of would-be students, the option of venturing into higher education is looking less and less like a viable route in the journey towards a successful and debt-free career.

Students may find themselves in a very difficult position if they settle for loans without exploring all of the other options for free assistance that are on offer.

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