The downsides to student debt

Alex Hartley
1st October, 2018
Ditching Debt

A large student debt is a cause for stress – that’s not news. Ever since fees were introduced (and repeatedly increased) for UK students there have been concerns about the impact of graduating owing such significant sums. Despite the fact that debt problems are widely acknowledged as a major cause of depression, when it comes to students, as a society we seem to expect graduates to simply knuckle down and get on with making the repayments. However, a recent report has highlighted that the level of student debt required for many people to graduate today is having wide ranging and damaging impact on the lives of graduates. Rather than simply restricting spending on luxuries, a new report indicates that the burden of student debt repayments can impact on job satisfaction, mental health and long-term financial future.

What does the survey say?

The research has been carried out by the Centre for Global Higher Education, who are based at the UCL Institute of Education and the University of Michigan. Although the team are US based they have been tasked with reviewing a range of research, not just relating to US students and educational institutions but to those in the UK too. The study took place over several decades and is considered to be a fairly authoritative work of research in terms of graduate lives in both countries. It made a number of key findings, including:

Home ownership. Being able to buy your own home is a major step in the process of establishing a positive financial future. The research found that student debt was linked negatively to home ownership. Not only are those with student debt having to delay home ownership as a result of those debts but they are also much more likely to be restricted to purchasing lower value properties.
Career trajectory. For many people, debt restricts career choices – often graduates have to take any job after university simply so that repayments can be made. This tends to lead to overall lower job satisfaction and can restrict career progression.
Financial future. High levels of student debt can often result in lower levels of net worth. People have less time to save for the future and so may end up without adequate retirement savings. Some even find themselves in financial distress and unable to service the debt.
Restricting entrepreneurial choices. The study found that those who graduated with high levels of debt rarely went on to explore entrepreneurial ventures. Although many students would have liked to pursue their own business, the combination of a sizeable student debt and the challenges of obtaining new business finance were off-putting. The need to cover repayments on student loans made the uncertainty of an entrepreneurial venture in the early years impossible to tolerate.
The impact on mental health. The Centre for Global Higher Education found that the existence of student debt had a significant negative effect on both students and graduates. It wasn’t just those graduating with a debt hangover who found the situation depressing and stressful but also those currently using the cash for study.

Student debt without the negative impact?

As this study showed, the existence of debt can make life very difficult for both students and graduates. It’s not ideal to have to borrow to obtain a qualification but there are ways to make it work.

Keep perspective on the future. If you’re borrowing to pay for studies now remember that there will come a point when the loan needs to be repaid. Plan for your career when you graduate and be prepared to take steps to ensure that you have the necessary income in place.
Don’t borrow what you don’t need. Student life is more expensive than it used to be but can still be lived relatively cheaply. When you’re signing up for a student loan, borrow only what you need to complete the course and don’t get tempted to borrow to pay for extras, such as travel or socialising.
Find ways to make your money go further. There are many benefits to being a student, from discounted rail travel to the money that you can save with an NUS card. Be proactive about finding ways to make your money go further so that you don’t need to borrow to survive.
Work while you study. Most student schedules will allow for at least a part time job and even a small amount of income could help you to survive on what you have, rather than getting into debt to get through the student years.