UK Student Loan Totals: A Remarkable Number Indeed

In a perfect world, people who borrow money at a reasonable interest rate will gradually pay the original amount back to the lender, along with the additional money represented by the interest rate. This would provide a steady interest income for those who have money to loan out, and a source of funds for those who don’t but are willing to pay the interest so they have access to money when they need it.

You know, of course, this isn’t a perfect world and there are loan defaults every day, across the globe. In fact, problem loans are considered a factor, in some way, every time a lender considers releasing money to a borrower. The risk is part of doing business in the world of finance. Studies of one type of loan – student loans – show that the total amount owed in this one category now exceeds £100 billion.

A Remarkable Number

This total is remarkable in and of itself. But there is a good chance much of that loan debt will never be paid back, ever. Even the non-professional who doesn’t fully understand the complex world of loans and finance will see this as a major problem for the economy of any country. Tuition costs have more than doubled in the last few years, which is certainly one of the causes for the dramatic increase in total loan amount.

But there is another issue here. The government has set an income threshold for repayment, and unless the individual earns more than this amount, they don’t have to make payments on the loans. In addition, you’ll only pay a percentage of the amount above the threshold. If you have earned your university degree and have a reasonable amount of income, you probably won’t have serious problems adhering to the repayment schedule. Unfortunately, earning potential hasn’t always kept pace with the demands made on student loans.

Student borrowing is the fastest growing segment of the industry, and is widely considered a significant factor in the health of the economy. Almost two years ago, Financial Times produced a detail look at the issue, estimating that 2/3 of UK students will never pay off their debit entirely. This is a major change from just 15 years ago, according to the article. “Of those who graduated in 2002, 44 percent had already paid off their loan within 13 years.” According to www.ft.com

Negative Balance

Some observers of the student-loan phenomenon note that the burden seriously affects the economic life of a generation. Rather than beginning with a zero balance, they begin with a negative balance. The problem is made worse since the earning prospects for many aren’t strong enough to allow them to overcome their debt. If the earnings potential is higher, the debt isn’t as much of a burden. But many graduates are finding it difficult to earn at a level that allows them to service their debt.

If you’re thinking about committing to a student loan, be sure your working with a lender who understands the issue, offers reasonable interest rates, and will work closely with you to help you reach your goals.