Student-targeting credit cards crippling grads

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The average UK student is leaving university with debts of over £12,000, a figure that’s expected to triple in under six years. Nick Arnold investigates why…

The exact figure the average British university graduate can expect to repay on joining the working world is £12,069. The figure has risen some 500 per cent since 1994 and 10 per cent on last year. Barclays Bank, which conducted the research, warned this amount could reach £33,000 by 2010 if the trend continues

While the majority of the money is owed to the Student Loans Company, students also often owe money to banks, family and credit cards. Barclays said the effect of the rising debts would be that students would have to wait until later in life before they were able to buy their first home and start paying into a pension.

Jeremy Law, a spokesman for Barclays, said: "The escalation of graduate debt over the last decade is the net result of the rising cost of living, the continued impact of the introduction of tuition fees and the abolition of the grant system."

The research comes only weeks after a study by the Times Higher Education Supplement which found more than a third of students are living on less than £40 a week. It also found that one in ten survived on an average of £950 a week.

To help with the rising costs of going to university, many undergraduates have part-time jobs to help them finance their lives while in higher education.

Ian Snape, the Assistant Registrar in the Student Assistance Office at the University of Salford, regularly comes across students in financial difficulty.

He said: "A lot of students rely on part-time work and the amount of students working part-time has increased hugely.

"Most people would agree that student loans aren’t sufficient to cover all the costs of going to University," he added.

Snape, who admits the number of people coming to see him needing advice is rising each year, feels part of the problem is students being actively targeted by credit and store card companies.

"They come to us with very substantial debts and credit cards and store cards are major problems," he said.

"Often – by the time students get to us – they are in serious trouble.

"Getting students out of these financial troubles is always harder than helping to avoid them in the first place."

Ian pointed out that the majority of students do manage their money very well, despite historic perceptions of them.

"Those stereotypical students who spend too much money on beer are relatively rare. Just occasionally I see them," he said.

Money problems for most students have their roots in debts they had already accumulated before going to university, or because they experienced problems arranging their student loans.

A number of students who had got themselves into substantial credit card debt at the University of Salford have since teamed up with the Eccles Citizens Advice Bureau to help students there in similar predicaments to negotiate affordable repayments to credit card companies.

Incredibly, despite being one of the poorest social groups, students could find it easiest of all to clear initial checks and amass credit and store cards.

To prove how simple it is I approached some, openly stating I was a student

Within an hour I was told I could get credit cards with four different companies, including Barclaycard, Egg and Capital One. Total credit: just under £2,000.

In the same time, five stores including: USC, HMV and Selfridges informed me I was eligible for their store cards, with varying amounts of credit totalling £1,100.

One shop even admitted I was far more likely to get a store card than other people who applied "because I am a student".

Ian Barber, a spokesman for Barclaycard, said his student product is designed to help students manage the inevitable ups and downs of university finance in a responsible way.

"Our maximum credit limit on application is £600 though on average it is a good deal lower than this," he said.

"Credit cards are a very small part of a graduates overall debt commitment and, unlike student loans, credit cards enable students to establish a credit history throughout university life," he added.

"A good credit record means access to the best financial offers in the market – no bad thing when you are managing debts on graduation."

Stephen Helsby, 26, from Warrington knows how easy it is to get into debt as a student.

Currently in his second year of a three-year degree in Sport and Leisure Management at the University of Salford, he owes lenders about £11,000.

Despite having a part-time job at the Soccer Dome in Trafford, his mounting debts are likely to rise to £15,000 when he graduates.

While the majority of the money he owes is to the Student Loans Company, he also owes money on another loan taken out before he came to university, and on two store cards and two credit cards.

One way credit card companies attract students in the first instance is by offering them incentives to open accounts with them.

Stephen said: "I got my Barclaycard during Fresher’s Week at a stall in my Student Union because they offered me free things. This was the main reason I got it."

Once the card arrived, Stephen promised himself it was only for emergency use. Two years later it has bceome the card he owes the most on.

"At the moment I owe over £200 pounds on it. I have to repay a set amount each month," he said.

The increase in student debt is another body blow to the National Union of Students (NUS), which is currently fighting plans by the government to introduce annual tuition fees of up to £3,000 for university courses.

They predict some graduates will start work with debts of over £30,000, and will struggle to pay off these debts while trying to buy a house. Government officials say this figure will be lower.

Snape admits he has concerns of increasing numbers of people coming to him for help if tuition fees are introduced.

"I would anticipate we will get a substantial increase in the number of people we see," he said.

"The introduction of fees would be an additional demand on students’ finances."

In spite of these figures there is some good news for students.

Other studies have recently shown that, on average, graduates earn a far greater amount than non-graduates.

A spokesman for the Department for Education and Skills said: "This is excellent news for prospective students. Over the course of a lifetime a graduate can expect to earn 50 per cent more than non-graduates."

Research also shows graduates often get more senior jobs compared to those who don’t go on to further education.