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Last Updated: Tuesday, 22 August 2006, 14:04 GMT 15:04 UK
New students face future of debts
Ian Pollock
Personal finance reporter, BBC News

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Anglia Ruskin University makes no bones about its cheaper courses

As tens of thousands of students prepare to head off to university next month, they are being warned they could eventually graduate with debts of more than 22,000 each.

One of the main factors fanning fears of spiralling debts is the new system of student loans that kicks in this year.

Instead of having to pay annual tuition fees of 1,200 before the start of the academic year, new students in England and Northern Ireland will be charged 3,000 a year and only get billed once they have completed their courses.

For a student on an average three-year course that would mean a total cost of 9,000 in tuition fees alone.

In practice, most students are expected to find the money by borrowing cash from the Student Loan Company (SLC) and then paying off the loan after they have graduated.

But the worry is that with extra borrowings from the SLC to cover general living expenses and the larger size of the final demand for tuition fees, a student could end up with debts of more than 22,000 when they leave university.

The National Union of Students (NUS) said it is extremely worried about the impact of the new system.

"Students today are leaving university with massive levels of debt and paying back student loans puts a major strain on their finances," said Wes Streeting, a vice-president of the NUS.

"Applications for courses starting in September 2006 have dropped by 3.4% on the same period last year," he said.

Cheap courses

If students are not fussy about which university they go to, or even which course they might take, then there are opportunities to shop around for cut-price deals.

Students are particularly vulnerable because they have no choice but to get into debt
Sue Edwards, Citizens Advice

Universities are not forced to demand the full 3,000 annual tuition fee and as a result the NUS has already spotted a developing market in cheap courses.

In fact some colleges are proudly trumpeting the fact that their tuition fees, and thus their students' eventual debts, are cheaper than their competitors.

Leeds Metropolitan University, for example, is currently charging just 2,000 a year for all of its courses, and applications have risen this year while those to neighbouring Leeds University have fallen.

The University of Gloucestershire is offering a 20% discount to any student who can afford to pay the 9,000 tuition fees up front in one go.

Meanwhile Anglia Ruskin University is currently offering 2,000 in cash to all prospective full-time students who start this autumn.

Compulsory debt

Critics of the new system argue that the vast majority of new students will simply have no option other than to take on debt - and then work out how to repay it.

Some students may have more access to funds, with those from poorer families able to claim newly reintroduced grants to partly offset the fees.

At the same time, those students from richer households and whose parents are willing to give them extra cash may also escape.

But with many students leaving home and looking after themselves for the first time, Citizens Advice (CA) reckons that too great a number are still being thrown in at the financial deep end.

"Students are particularly vulnerable because they have no choice but to get into debt" says Sue Edwards of the CA. "People don't get education in financial matters and credit is very easy to get."

For the cash strapped student options include free overdrafts offered by banks, credit cards and loans from the SLC.

The loans from the SLC are likely to be the cheapest on offer as they are linked to the UK's inflation rate and only have to be repaid once the student is earning at least 15,000 a year

Even so, they will take some years to finally pay off.

Outside work

One obvious and increasingly popular alternative is to earn money while studying, typically by taking a part-time job.

Once upon a time it was unheard of for university students to do this, at least during term time, but recent research by the Natwest bank showed that 87% of this year's new students think they will have to find a job.

One piece of good news is that running up a big bill to the SLC will not affect a student's credit history, because the loan firm does not share this information with the credit scoring firms like Experian.

Get your finances back on track before you ruin your credit status
James Jones, Experian

But failing to repay any commercial debt such as a bank loan or credit card certainly will show up.

It is estimated that currently only about one in eight students uses a credit card but they can often be a source of problem debt for students.

James Jones, the consumer affairs manager of Experian, warns defaulting on credit card repayments while a student will affect your ability to borrow in the future.

"Protect your credit report while you can," Mr Jones warns. "Get your finances back on track before you ruin your credit status and put your ability to obtain essential credit, like a mortgage or a car loan, in jeopardy."

Going away to university is often a student's introduction to what life as an adult has to offer - and in the last few years dealing with large debts seems to have become one of them.

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