Thousands of students will have found out where they will be going to university this week, as the deadline for institutions handing out offers passes.
Many will be questioning how they will fund their university experience, with almost £20billion worth of student loans each year being issued to around 1.5million students in England.
But new research shows that taking out a loan to fund a degrees could make students likely to take on more debt after graduation, taking out nearly twice as much credit on average as someone without a degree.
Debt: University graduates said that using a student loan to fund their degree made them more comfortable borrowing money
Nearly half of university students and graduates said that receiving a student loan had made them more comfortable with other forms of borrowing, according to new research from credit reference agency Equifax.
Two in five also said that borrowing funds for university had made them more likely to borrow again in the future.
Between the ages of 18 and 40, people who attended university have on average £12,445 in debt compared to those who didn’t attend university, who borrowed an average of £7,105.
That is excluding the burden of a student loan, which currently costs up to £9,250 a year for tuition fees. Maintenance loans can go up to £12,667 for those studying in London.
Last month, the UK announced major changes to student loan terms that are expected to increase the debt burden for young graduates across the UK.
These include a ten year increase to the repayment period for new entrants next year; a freeze to the income threshold at which graduates since 2012 repay; and changes to the way that threshold increases over time.
Interest rates on student loans taken out post-2012 are also set to rocket from 4.5 per cent to 12 per cent for current students and high earners from Autumn.
Students applying to UK universities are expected to hear back from UCAS on their acceptances this week
All this means that graduates going to university this year will have to repay around £400 more each year.
This figure rises to £750 for those applying to university to start in 2023, who may be paying off their debt well into their 60s.
Over a third of graduates aged 29-40 years who benefitted from much lower student fees, or none at all, believe that the changes are unfair, and will deter some people from attending university.
And, nearly half believe that these changes will create a generational divide between those paying and not paying the higher fees.
Equifax’s research indicates that students and university leavers are not just borrowing more, they are also more likely to be using a range of forms of credit.
Nine in ten of those who attended university have some type of credit, compared to seven in ten of those who did not.
Graduates are also more likely to have a credit card, mortgage, overdraft, loan, or use Buy Now, Pay Later services.
Paula Roche, managing director at Equifax UK, said taking student loans out makes graduates more used to taking out larger forms of credit when they finish their education, but that this isn’t entirely bad news for graduates.
She said: ‘The research tells us that going to university and having a student loan makes people more likely to use other forms of credit, to have looked at their credit report, and to be in tune with their finances overall.
‘But there are signs that this greater exposure to the credit market is also being driven by a greater familiarity with, or even desensitisation to, borrowing while at university.
‘Whether it’s credit cards or car finance, using the credit system and building up a credit history is one of the best ways to build a positive credit score, which could be giving graduates a further advantage when applying for a mortgage in later life.
‘Taking out different forms of credit isn’t problematic when managed responsibly and repaid on time.
‘It’s important for all young people to understand the different types of credit available, and to have a clear view of how their financial history may influence their ability to access them.’
Need for more financial education
The study highlights a need for greater financial education during school age, with a quarter of respondents stating that they didn’t receive any support or education before they turned 18 years old to help with managing their finances after school.
Levels of anxiety when managing money were concerningly high for all young people in the study regardless of background, but it does appear that student loans may be contributing to the problem.
Credit confusion: Half of university students have never accessed a credit report, saying that they don’t know what one is or how they work
Around 64 per cent of those paying off a student loan said managing their money causes them anxiety, compared to 58 per cent of those who didn’t receive a loan and 57 per cent of those not attending university.
A contributing factor to young adults’ money anxiety could be a lack of understanding of their financial history.
One in five young adults said that they had never accessed their credit report, and this number rose to half among those currently in higher education.
Almost half of those not doing so said they did not even know what a credit report was.
Roche continued: ‘Whether or not someone goes through higher education, 18 to 22 is a critical age, when young people will be polishing up their CVs, and getting ready for the world of work.
‘It’s a little concerning therefore to see that a third of people in this age band have never checked their credit report, their financial CV, and for almost half of that group it’s because they’ve never heard of one.
‘Education is absolutely imperative if younger generations are to feel empowered to manage their finances throughout early life stages.’