Up to their eyes in debt

Graduates are struggling to clear their student overdrafts. By Kate Hilpern

ACCORDING TO a recent survey by Barclays Bank, 86 per cent of students think they will be in debt at the end of their course. Pretty high, you might think, but many would be surprised it is not higher.

After all, the average student graduating this year can expect to owe almost pounds 4,000. That is around five times the figure from 10 years ago. In the last year alone, there has been a 30 per cent rise in the amount owed to the student loan scheme, and over the last five years, money borrowed from the scheme has risen from under pounds 100m to pounds 700m. So do these enormous sums mean graduates are five times as worried about debt as they were a decade ago?

Apparently not. Graduates are less troubled about their debts and less efficient at repaying them than ever. Barclays' survey claims: "As awareness of debt is increasing, students are becoming more resigned about their lack of money. The number of students who are worried, angry or concerned about their debts has fallen by 9 per cent over the last year to 30 per cent and 21 per cent since 1992." Professor Stephen Lea, economic psychologist at the University of Exeter, agrees: "Today's students don't share the same hostility towards debt as the rest of the population. Even their hierarchy of repayment surprises some people. At the bottom of the list are student loans - which often form the biggest debt - yet they are usually not considered as debt at all but merely as credit. Then there are bank overdrafts which start off creating resentment in the first year but, as the terms pass, students just get used to them, considering them as the norm. Then at the top of the list are friends and family who are almost always prioritised in terms of worry and repayment."

Naomi Atkinson, a financial adviser, is not surprised. "If graduates know they can get rid of their debt within a very short period of time, they might consider getting it out of the way. But if a single repayment is nothing but a drop in the ocean, they think, why should I bother? Second, the impact of earning a real wage means it's quite normal to want to keep it to themselves. Before they know it, they've got used to a monthly income, and we all know how much harder it is to adjust to a lower standard of living than staying on a low one in the first place."

Research shows that the amount of money borrowed by students is closely related to salary expectations. "Female students tend to manage their money more cautiously than men, with smaller debts," says Dr Alan Lewis, economic psychologist at the University of Bath. "Men, on the other hand, often blow large amounts in the pub and are much less likely than women to do proper accounting while at university."

Julian Goode, 27, graduated in 1995 with more than pounds 7,500 of debt. "I was living in cloud cuckoo land about my salary expectations. Now my credit card bills are really starting to get to me. At least I can put off the student loan because my salary is low enough that I can keep deferring repayment." This will not be the case for long, however, for the threshold is getting lower. Currently, graduates can defer repayment if they earn under 85 per cent of national average earnings, but soon, students earning more than pounds 10,000 a year will have to start repaying.

When the debt collectors caught up with Suzy Asquith, 27, she left her career. "I had a good job in the media but it didn't pay well. It would have done once I'd worked my way up but I left and went into sales where the money was good enough to start paying back what I owed. But that was a year ago and I'm still having difficulty even getting back into media. I wish I had started paying my debts back earlier. Then I wouldn't be in this awful position."

Prof Lea claims increasing numbers of young people are being encouraged to consider debt as just another aspect of everyday life. "Even by offering students a clear financial package with a realistic repayment system, we could improve this situation," he says. "We need a system which will keep them out of the clutches of overdraft merchants."