Don't get stung by student finance
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It is now only a matter of weeks before universities across the country throw open their doors once again to welcome a new flock of bright young minds.
After several trips to IKEA to pick up the all important knick-knacks and a final farewell to friends and family the the world of independent living will be upon new students. With it will come many shocks and surprises. The initial nerves of how to work the washing machine and realising that not every meal can be cooked in a microwave soon pass. It is then that the bigger responsibilities become apparent, the biggest of which is finance.
With the trebling of fees in many English universities and the squeeze on places for Scots students wanting to study north of the border, there has never been a time when the importance of obtaining a degree has been so questioned. It is no longer possible to get a truly free education in our universities, thus ensuring sound finances are vital if you are to make it to the end of your degree.
The big banks will descend upon campuses across the country aiming to hoover up as many students as possible by inciting them with free travel cards or interest-free overdrafts. Student accounts are now big business for banks, who are always on the lookout to add new customers to their books – customers who will statistically stay with them for life.
Most of the offers they make available, especially the offer of overdrafts, do come with some heavy legal small print. The Halifax for example offers student account holders a £3,000 interest free overdraft with a year after graduation to pay it back. Other banks offer similar deals that gave young students the opportunity to get a large amount of credit at a very young age.
The banks will argue that these overdrafts give students a 'piece of mind' during their students and that they understand that finance can be tough during university. However where the niceties end are when banks start to ramp up their sales pitches by offering credit cards and large loans to their student clientèle. These 'great offers' are pushed almost every time that a student gets in touch regarding their finances. Loans can be offered in minutes and credit cards opened within days - banks say that this is offering a valuable service to their customers.
If these loans or credit cards are not paid off within the allotted time, massive rates of interest are charged – resulting in greater personal debt. Surely this a far cry from assisting their customers?
By looking closely at these credit cards and loans it is clear that the banks have one aim by pushing these products- to get students further into debt. Now obviously banks are profit making businesses and no-one would argue otherwise. However what we have seen across the world in recent years is banks giving out credit frivolously to anyone one their database – and so, the biggest economic collapse in recent history.
Serious mistakes were made by banks in the US lending large mortgages to those who were never going to be in a position to pay it back. The same is still happening with student finance in the UK five years on.
With little financial education available in schools it is hardly unsurprising that banks will prey on new university students – for the majority of whom this will be their first time living away from home. Most of the Daily Mail community will blame the individual for agreeing to take out such products that result in personal debt. This is too simplistic an argument and is exactly what was said by the very financial institutions that were giving out large mortgages to cash-strapped Americans all throughout the 2000s. If our recent history has taught us anything about capitalism it is that the previous system simply didn’t work.
Banks, like any other organisation that works with the public, have a moral duty to be socially responsible to their customers and investors and offering large amount of credit to students is in stark contrast to this mantra. The sales tactics used by lenders to students is no different to what happened in the USA in the last decade.
Financial products such as loans and credit cards are useful to those who are in a position to pay them back but should not be offered to those as a way of making ends meets. For some students taking out aforementioned services is their only option to pay the bills - but this throws open a much wider debate around student finance.
Our schools need to place a greater emphasis on ensuring that our young generation goes into the big bad world fully in the know when it comes to finance. This shouldn’t simply be a tick-box exercise that warns of the dangers of credit cards – but should equip youngsters with the skills needed to open a current account or pay bills.
It is only through a combination of good education and greater social responsibility from our financial institutions that we will see the end of easy access credit to our student population. Some lessons have been learned by these institutions over providing cheap credit to the masses, but when it comes to student finance our bankers need to go back to class and think again.