How Do Students Afford University?

Four out of five students get into personal debt at university.

September saw universities across the country opening their doors to a new year of eager students. Packing the car full of student essentials, preparing for fresher’s week, making new friends – heading off for university can be an exciting time, whether you’re a first-year who’s just finished school or a mature student studying alongside work and family.

But for many people, university is the first time they’ve been away from home for a long time. It’s also the first time that many young people have been wholly responsible for their own finances, from day-to-day budgeting to having to manage a lump sum of money with loans and grants. It’s easy to get overwhelmed with this new level of financial responsibility, and students may find it difficult to know how best to manage their money. Many turn to other sources of income to help get through university such as getting a job, but it can also mean opening lines of credit - which in turn can lead to increasing debts.

Here at Lowell, we want to help educate everyone about their finances and improve awareness about debt in the UK. We wanted to find out more about how debt affects students, and how much personal debt students get into at university, so we’ve conducted a survey to look into all things debt-related when it comes to present and past university students.

How much debt do students get into at university?

Our survey revealed that four out of five students get into personal debt during university, graduating with an average debt of £2,332 – which took an average of 3.8 years to pay back in full. 15% of both past and present students leave university with more than £5,000 of debt – and that’s not counting tuition fees or student loans.

Having financial issues can feel daunting – but we’re here to help if you have a debt with Lowell. If you’re a Lowell customer, get in touch and find out how we can help you clear your debt with us in a way that’s practical and affordable for you. For useful guides to help you understand more about debt and finance, be sure to check out our debt guidance hub.

What sources of income do university students rely on?

Between the cost of socialising, travel to and from home, and the cost of laptops and equipment, university can be an expensive time, and university students are looking to new sources of income to get them through their studies.

The most surprising statistic that our survey revealed is that almost one in ten students (9.2%) are using payday loans to get through university. The high interest rates often associated with payday loans can end up causing further financial difficulties, so it’s important to be cautious and understand exactly what you’re signing up for if you take out a payday loan.

Payday loans are paid directly into a bank account and have to be paid off in full, including interest and other charges, at the end of the month. Typically, the average annual percentage interest rate for payday loans can reach up to 1,500%1

15% of students are also using Buy Now Pay Later services to help fund their lives at university – and while these services can sometimes offer a way to spread the cost of a purchase, you should always check the terms and conditions before you use them, as they are technically a form of credit and may have consequences if you fail to maintain your payments.

Buy Now Pay Later lets individuals use this as a payment method when shopping and they can pay back either in instalments or after a specified time period e.g. in 30 days. Unlike payday loans, a lot of Buy Now Pay Later (BNPL) agreements are advertised as being interest-free. You can find out more about them in our guide to Buy Now Pay Later and how it works.

Some of the most used forms of credit for university students include credit cards (26.6% of students) and overdrafts (24.7%). While using credit responsibly can help you to build your credit score as you’re getting started in life, bear in mind that relying too much on credit services could have an impact on your finances. It’s important only to borrow what you need and to make sure you can afford the repayments. If your account has any defaults or missed payments, this could negatively affect your credit file and may make it difficult to borrow money, or obtain services, in the future.

Check out the support that’s available if you’re having a hard time with debt.

Student spending habits

Our survey revealed that the majority of students still prioritise the essentials: bills, rent, and the weekly food shop. 56% of past and present students we surveyed said they were most likely to spend the most money on the weekly food shop, followed by rent (51.7%) and bills (44.1%).

However, once the basics are covered, students were still most likely to spend their money on nightlife (34%) and food like takeaways and eating out (31.6%). With the cost of living crisis and rising inflation continuing to stretch budgets, this could lead to more young people turning to other sources of income and using credit in a way that could cause financial issues in the long term.

How long does it take to pay back debt after graduation?

It took 16% of students four or more years to pay back their personal debts after university. With so many students leaving university with personal debt, the pressure to find a job post-graduation is even higher on recent graduates.

Whether you’re still at university or a graduate, it’s important to know that you’re not alone when it comes to debt. There’s plenty of free, independent debt support available from places like StepChange – and for Lowell customers, we can help you to find the right support to deal with your debt and finances. For more helpful guides and useful information, check out the Lowell blog.

Published by Stephanie North-Shaw on 11/10/2022

  1. Data from Moneyhelper