Student debt: Ask the campaigners

Frances Harrison, from the National Consumer Council, and former student Ishita Sarkar, answered your questions.

Transcript

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Students are being warned to stay clear of gimmicks being offered by credit card companies which could lead them into heavy debt.

Offers such as free cameras or book tokens, may seem attractive, but running up expensive credit card debt could "push students over the edge".

The warning comes from the National Consumer Council just as students are preparing for the start of the new academic term.

Surveys suggest graduates can expect to leave university with student loans, overdrafts and other debts totalling between £10,000 and £15,000.

Are credit card companies guilty of luring students into even more debt? Is enough being done to advise students on how to manage debt?

Your questions were answered by Frances Harrison, Head of Research Policy and Development at the National Consumer Council and former Portsmouth University student Ishita Sarkar, in an interactive forum.

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Transcript

James Westhead:
Hello and welcome to this BBC News interactive forum, I'm James Westhead. Today students are being warned to be wary of credit card companies trying to lure them with "gimmicks" like free cameras and book tokens. The warning comes from the National Consumer Council which says credit card debt like this could push students "over the edge". It's timely advice, as thousands of young people will be arriving at university for their freshers week in the next few days.

But is it credit card companies who are guilty of leading students into debt - or should students themselves be more responsible? You've sent us your questions and I'm pleased to say that joining me to help answer them, is Frances Harrison, Head of Research Policy and Development at the National Consumer Council and former student, Ishita Sarkar, who graduated from Portsmouth University this year. Welcome to you both. First Ishita - what's your personal experience of credit card companies luring you debt, as it were?

Ishita Sarkar:
When I opened my account, they said that if I took their credit card with it, I'd get £50. So that's why I thought yes I'd take it for the money. Then they increased my credit limit after a while without asking me and when I asked them to reduce it they tried to persuade me to keep it at that level.

James Westhead:
So what was your credit limit and what did they want to increase it to?

Ishita Sarkar:
It was £500 to begin with and then it went to £1, 500.

James Westhead:
This is while you were still a student with no particular income?

Ishita Sarkar:
Yes.

James Westhead:
Did you get into debt?

Ishita Sarkar:
Yes I did - about £630 and obviously there was interest on it. So basically I got my sister to transfer it over so I wouldn't be paying interest over the next six months.

James Westhead:
Why did you go ahead with that given that you're obviously quite a sensible person and you knew that this would get you into debt and you'd have high interest rates to pay?

Ishita Sarkar:
Well actually I didn't realise the impact of the interest rate - it was only when I starting seeing the credit card bills that I realised how much was added every month. So I wasn't aware of it before.

James Westhead:
If I could turn to Frances and ask you, how typical is that and what's your worry about credit card companies and students?

Frances Harrison:
I think we know that students are already going to be taking on a lot of debt with student loans. They're inexperienced young people, going away from home for the first time in some cases and simply don't have the experience of life and using a credit card and their fellow students are in the same position. When you're an adult perhaps you hear more stories about how people manage or don't manage their credit cards but for young people it's a sign of adulthood to be offered the thing in the first place. But we all know that once you've got that plastic card in your pocket, it doesn't feel like money - so can you afford that meal out with your mates, you haven't got any money but you've got this bit of plastic.

James Westhead:
Paul Reeder, UK: I am a 4th year student at Bournemouth University. I think students should stop moaning about the cost of university and credit cards and just deal with it.

He think what your suggesting - the sense of freedom - and says, do you think the only reason that students are getting into debt is because they don't know how to handle they're money and become lazy with the first piece of freedom they have from they're parents?

Do you think it is partly students' responsibility?

Frances Harrison:
I think it's both. But how can we expect students to know everything when there simply isn't the education for that in schools at the moment. We're seeing an increase from nothing to a little bit in schools through personal, social and health education and some in citizenship education but these are only the odd lesson, if that. What we really need to see is much more development of understanding of how credit works.

James Westhead:
If I can turn back to you Ishita, was that your experience as a student - you felt a bit lost and didn't understand how this financial bit worked? Did you feel that you were at risk from credit card companies? We have an e-mail on that from Jonathan Ricks, England: I recently received an invitation to take out a loan from a credit company with a sample cheque for £10,000 with my name on it and pictures of people enjoying a holiday. I see this as underhand and immoral and the law needs to be strengthened.

Do you agree with that - do you think there needs to be some sort of legal control in this area?

Ishita Sarkar:
I think students should be made more aware of how much they'll be paying back. I think a lot of us do know what we're doing but at the end of day we don't know what's added and what we need to pay back and how long it can take to pay it back and as you said, with a card you don't realise how much you're spending because it doesn't feel like you're paying anything at that moment until you get the bills through at the end of the month.

James Westhead:
Frances, do you think the law needs to be tightened?

Frances Harrison:
Definitely. We're working at the moment at the National Consumer Council on how consumer credit law can be reformed. The Government is going through a process at the moment and we're expecting a White Paper on credit in a month or so. So the law at the moment is 30 years old, outdated, designed for a credit market back in the early 1970s and it doesn't suit today. What we don't know is, as Ishita said, we don't actually know how much the commitment really is. On my credit card bill this month, I've got something like £368 and there's a minimum payment there of £14. It doesn't tell me how much I would pay in total if I paid £14 a month and borrowed more and how long would it take me to pay it back - no idea.

James Westhead:
There's an e-mail we've just had in from Keith in Lerwick, who says: Do you think that students see loan money as free money because we're told that interest rates are low - everyone gets student loans, the amount you pay back is nothing? I've just graduated from Edinburgh - most of my colleagues believed students loans were like a gift and when it arrived each term, spent it accordingly.

Do you think the student loan - the understanding of how that works and how that's paid back - is not being grasped by students and communicated by government?

Frances Harrison:
Maybe it is because the student loan is the way to finance your way through university along with working, in some people's case, as well. But because that is offered as something with no interest and you pay it back later, maybe there is a perception that you will be treated differently for all other forms of borrowing that you're offered. And yes, some of the credit cards do say no annual fee. So they do differentiate in that sense and make it a special deal for students. But the interest rates are the same and the way that they accumulate and compound over the time is exactly the same. So it may be a wrong perception of how you're being treated as a student and on the lenders' side we do expect more responsible lending - making sure that when they're making offers, that these things are actually affordable by these people who are actually on a very low income.

James Westhead:
But do you think there is really much that the law or that lenders can do? We have an e-mail from Suzanna, England a former student who says: I'm fortunate that I managed to get through university without incurring huge debts on my credit cards but many of my friends did and their attitude was 'we're going come out of uni. with thousands of pounds worth of debt what's a few more?' Should students change their attitude?

Frances Harrison:
It's incredibly sad and it's obviously a fairly new phenomenon that this massive amount of debt is on these people's shoulders. What we're also seeing is a lack of savings by people throughout their lives. Only one in five are actually putting money away on a regular basis. So when you put these two things together, we've got a ticking time bomb in a sense. We've got people starting off with massive debt, having to pay that off first before they can ever start to save for their future. So I think that as a society we really need to see how we can manage this because there isn't enough money at the end of the line for all those who retire.

James Westhead:
Ishita, I'll come to you a moment because you're in exactly in this situation - you've left university now, you haven't got as much debt as many students - about £4,000 - what does it feel like?

Ishita Sarkar:
It does feel terrible because I don't know when I'm going to clear it - how many years is it going take. At the end of the day, over the next couple of years none of the money that I'm going to be getting is mine as I will be constantly paying off money that I spent at university. I think you realise that once you've left university and not when you're at university and you calculate how much you are in debt and that's when it hits you.

James Westhead:
In the e-mails we've received, it's the Government a lot of students are pointing to as being responsible for the student debt problem rather than credit card companies. I've had two e-mails here, one from Tian Ree, and one from Graham and they both say much the same thing - that's it not fault of credit card companies and shouldn't we be addressing the reasons forcing students to take credit cards in the first place?

Graham goes on to say: Credit Card companies don't lead students into debt. The Government does that for them. A lot of students need credit cards to survive because the Government won't give them anything apart from a loan which nine times out if ten isn't enough to live on. Isn't the answer to bring back student grants?

Frances Harrison:
I think that the Government has a policy of getting more people into higher education and if you've got that policy, you can't at the same time provide free education at that level - you've got to choose one or the other. In a sense looking across the rest of the world, students are working their way through university and it's about getting that balance right for those people. Many students have part-time jobs, sometimes within the university themselves, working behind bars etc. But it's working out whether, at the beginning, how are you going to manage, are you that person that needs to do some part-time working - if you are, plan it at the right time so that you're not having to take on the jobs just at the time when you've got all those assignments that have got to be in - get in that part-time working early on and manage that income on that basis. I'm afraid it does seem to be a fact of life - I can't see us going back to a situation that I certainly enjoyed of having free education. It is much more a working environment now.

James Westhead:
You're saying that society is just changing - attitudes have changed and the reality has changed?

Frances Harrison:
I think with the target of more people going through higher education, that seems to be fact of life.

James Westhead:
We've had an e-mail from Graeme Phillips, Germany and he points to America - they have long had a situation where students had to go into debt and take loans. But at the same time they have much more of a willingness from charitable donations to help students and universities themselves help students. He points out that in America, there are various charities offering external funds to American students and many universities put together aid packages for students they are keen to have, that often result from endowments made by people to the universities. Do you think it is time we did more to care for students in need, so that they aren't dependent on credit cards?

Ishita, what do you think of that?

Ishita Sarkar:
Like scholarships?

James Westhead:
Yes - they're not as common and valuable in the UK as they are in the United States.

Ishita Sarkar:
I think that's a really good idea. There are people who just can't afford to go to university - I had a friend who was going to leave after the first year as she didn't want to start off her life being £15,000 or £20,000 in debt from being at university but she was a very good student. So I think scholarships are a very good idea.

James Westhead:
We don't seem to have those in this country.

Ishita Sarkar:
No, I've never heard of anyone getting a scholarship.

James Westhead:
Does that reflect a difference - perhaps we're just less charitable in the UK?

Frances Harrison:
Maybe it's because we've just come into this situation where students are having to pay their way through. We've got many educational charities and I expect they were set up at a time where the object of the charities was necessary for something different. And maybe that's something that could be encouraged in order to address this. We see it in other areas - for example, utility bills - water companies have set up charities in order to help those people who cannot afford to pay their water bills. So the need comes first really before something else then comes along to address it in a charity form.

James Westhead:
Nickolai in Cardiff has just e-mailed us and asks: Do you think we are falling into the same trap as America? We're running an economy based on credit - it starts the moment you leave home, we're then tied to out debts for life. We have little or no regulation over credit and this is an issue that needs to be seriously addressed.

Frances Harrison:
We do have a ticking time bomb on this because we are as a society and as individuals, carrying a lot of debt. At the moment there's been plenty of publicity given to the average amount of debt - £37, 000 for a household.

James Westhead:
Most of that must be a mortgage though.

Frances Harrison:
I think some households are in rented accommodation. So £37,000 is quite a lot when you average it out across the population and a lot of that is unsecured. So it isn't mortgage debt. And at the same time we're not saving enough and we know what's going on with the pensions market and that there are problems there. So I think in terms of looking after our financial futures, we only need a change in the economy, a slight downturn, and more people will slip into the situation which they won't be able to manage.

James Westhead:
Just to be fair to Barclaycard, one of the credit card companies that specialises in advertising and promoting to students. A spokesman for Barclaycard has accused the National Consumer Council of insulting students' intelligence and says students are amongst the bank's most responsible customers and are well able to compare what different companies offer and make responsible choices.

I suppose you might argue, credit card companies are offering cards to students because they're very confident that they are going to be able to pay them back because they are going to get well paid jobs at the end of it.

Frances Harrison:
Well I think that rather overlooks some of the misery that caused by people who's debt spirals out of control. I do absolutely agree that a lot of students are very canny - they are taking up the offers with the cameras, book vouchers etc and what they're doing is as soon as the card comes through, they're cutting it up so they are not tempted. But you've only got to hang onto that piece of plastic - and everyone knows who's got one - it doesn't feel like money so it is much easier to accumulate debt when you've got a piece of plastic. So it's really that warning - some people will be able to manage it by cutting it up, some people will repay it and just use it as a cash control mechanism and pay things off every month. But those that don't - the interest mounts up and there's no getting away from that and it just means that your debt is that much greater when you leave university.

James Westhead:
Ishita, you're in a similar situation - that money must worrying you?

Ishita Sarkar:
Yes, definitely. I personally think that's what the banks count on that you won't be able to pay it back and that's why they give us such big overdrafts.

James Westhead:
So what's your personal advice to anybody who's tempted by these free gifts to take out a credit card?

Ishita Sarkar:
If they do I think that's a very good idea that you cut the card up when you get it because if you've got it you will use it, even if you're sensible for while at some point you will start using it and you just don't realise how much you're paying.

James Westhead:
Final e-mail from Owen, London who says: Learning to manage finances is an important rite of passage for any young person and lenders shouldn't be blamed for students' financial excesses. Card companies carefully assess ability to repay and won't lend to people they think are incapable of meeting it. But all the same universities, lenders and student groups should make greater efforts to advertise the dangers and consequences of poor management.

Frances Harrison:
It's a balance - better information, clear information - about what the consequences are and how that is going to work out in terms of cost and time of repayment. But also better education and advice.

James Westhead:
So just finally for anybody who might be in that situation - a bit worried about their debts and their credit cards. What should they do and where should they go for advice?

Frances Harrison:
Certainly every university will have a student welfare advice service - so that's a very good port of call. Talk to your family though as well. Don't immediately think of borrowing more in order to sort things out. Seek advice. If you're in difficulties and you can't afford repayments then it's always worth contacting creditors because commitment to pay is what they value most all and they will always come to some arrangement where possible to pay back at a lower level.

James Westhead:
I'm afraid that's all we have time for. My thanks to our guests, Frances Harrison and Ishita Sarkhar, and to you for your many questions. You'll be able to watch this forum again by going to our website at www.bbcnews.com/haveyoursay. But from me James Westhead, goodbye.