Runaway debt: It's the new norm for university students now

StepChange, the debt charity, has revealed that students who called its helpline in 2013 had racked up average debts of £7,818

Peer pressure and the so-called “fomo” phenomenon is driving students into unnecessary debt as half of all undergraduates run out of money before the end of the month, research has shown.

Financial education firm Blackbullion said nearly a third of students blame “unexpected expenses” for the shortfall in their finances, while 38 per cent admit they splash out more often than expected.

The Money Charity has already warned that some students in England may need as much as £750 a month to pay for their accommodation, even after receiving the maximum funding available through maintenance loans. This could leave the average English student based in London with just £449 to live on each month, while that figure drops to £350 if they live outside the capital – the equivalent of an adult on a £21,000 salary paying more than £1,000 a month in rent and bills per month.

But Blackbullion’s Vivi Friedgut said the majority of students still fail to use their scarce funds in an “efficient” way: “The biggest cause of unnecessary debt is peer pressure. That, combined with the influence of celebrity culture and constant invitations to access credit, tempts many to spend money they don’t have.”

She added: “Debt is the new normal for students. After one of my recent sessions, a first-year student came up to me and said he had only just got through his first month at university without using a payday loan to fund his everyday life.”

StepChange, the debt charity, has revealed that students who called its helpline in 2013 had racked up average debts of £7,818. Three-quarters of those callers had gone into the red on their overdrafts, owing an average of £1,509, while more than half needed help with credit-card debt, typically worth £3,657. And 21 per cent of student inquiries to the Stepchange helpline last year related to payday-loan debt, at an average of £1,069 per person.

Jonathan Chesterman, advice manager at StepChange, said: “Students must be aware of the risks of high-cost forms of credit, such as payday loans and store cards, which can quickly spiral out of control due to the high levels of interest and charges.”

Linda Isted, communications manager at the Debt Advice Foundation, said: “The problem is that so many financial providers are throwing credit at students, with banks in particular hurling credit cards and overdrafts in their direction. There is not enough financial education at school or in the home to teach young people how to deal with those messages.”

Both StepChange and the Debt Advice Foundation offer help in creating budgets and an action plan to slim down debt. Most universities and colleges now offer some form of face-to-face debt advice service as well as an out-of-hours phoneline, thanks to the Association of Student Money Advisers. Many universities also provide small emergency loans or hardship grants for students in need.

Maintenance loans, grants and bursaries are often paid in big lump sums at different times. So it might be a good idea to set up a second bank account, according to Ms Friedgut. She says: “Ensure all your income, including any family funds or wages from a part-time job, goes in there. You can then set up a standing order to transfer a monthly salary into your first account.”

Set up your automatic payments so that bills can be paid on the day your student loan comes in. Make sure this process is synchronised with any housemates you live with.

Ms Friedgut advises withdrawing a certain amount of cash from an ATM each week to spend in local shops or on the high street. “There is a massive danger with debit cards, Paypal and contactless payments – companies like these methods because it encourages customers to spend money. Limiting yourself to cash really helps you to keep tabs on your spending.”

If you run out of money, resist the temptation to use your debit card so you can learn to live within your limits. Embrace bargain hunting rather than expensive trophy possessions. It may also be wise to shun supersized overdrafts so that you’re not inclined to borrow for the sake of it.

It’s also important to get into the habit of checking your bank account regularly.

Santander has just made it easier with a new mobile banking service designed to complement its existing banking app, which it says is “perfect for students about to start university and manage their money for the first time”.

Finally, don’t be afraid to discuss money with your friends. Suggest free or cheap things to do and scour websites such as savethestudent.org for good deals. Using an NUS discount card and a Young Person’s 16-25 Railcard will help you to make valuable savings along the way.

Case study: Jake Askew, a student at Sheffield University in Sheffield

Jake Askew, a student at Sheffield University in Sheffield, South Yorkshire (Lorne Campbell / Guzelian)

Jake Askew admits his main passions – gaming, going out and his guitar – can strain his student finances. But the 20-year-old, who studies civil and structural engineering at Sheffield University, keeps tabs on his Santander student account and cuts back if his balance looks low.

He said: “I always consider what money will come out of my account each week – not just bills but big social events: whether I’ll be travelling around, whether there’ll be a birthday night out. I’m happy to eat out less, stop my Netflix account and take sandwiches into university if things look tight.”

The third-year student says he tries his best to make the weekends “cheaper and easier” for friends who are feeling the pinch. “Going to university makes you realise how much money plays a part in what you can and can’t do. You’ve got to chip in and help each other out because you don’t want to see your friends going into huge amounts of debt.”