As students and finance continues to dominate headlines, Andy Howell examines just how problematic Irish student debt may be set to become.
Stereotypically, students are all seen as poor; always hounding our parents to ‘lend’ us a fifty to pay for our week’s dinner, missing lectures because our part-time job takes preference, and generally living in squalor. But is there substance to this stereotype? Do students have to take out loans just to get by, or are they simply pining for a few luxuries?
The issue of student debt will undoubtedly become a more pressing issue in coming months with the impending re-introduction of third-level fees. Arguably the most crippling form the fees could take would be a flat sum to be paid at the beginning of each year, which would leave students with little money to carry them through the year, before even mentioning the cost of books and other necessary equipment.
Alternatively, if fees take the form of a graduate tax or similar post-college repayment system (including Fine Gael’s proposal for a PRSI contribution system), it could take years before students could even think about buying a house.
With a deepening recession upon us, and the cost of education one of a handful of costs which is still on the rise (up 5.5 per cent in the last twelve months, according to a recent Central Statistics Office study), I spoke to Kealan O’Reilly from Bank of Ireland about the worrying outlook for students.
At present, 19 per cent of students who bank with the group in the Republic of Ireland hold a loan, and 32 per cent own a credit card. On the question of whether the bank expects students to take out more loans as the recession continues, the response was that Bank of Ireland “does not believe that the recession itself will increase demand for student loans. Instead we see loan requests increasing if the number of students increase and lending opportunities are likely to arise as people respond to back to college initiatives that are currently being promoted”.
“Do students have to take out loans just to get by, or are they simply pining for a few luxuries?”
When asked if the banking sector is concerned about rising student debt, O’Reilly pointed out that Bank of Ireland is “not seeing any material change” as regards a rise. Generally then, it seems that students are good at managing their money, with O’Reilly commenting that “students are very careful with managing their debt.”
As for the maximum a student can borrow, this is “assessed on a case by case basis”, and since students “need to have the capacity to repay [an income]”, it appears that there is little chance of students getting into serious trouble with money. Does this mean then that the introduction of third-level fees would not put a strain on the finances of students?
Recently published figures on the state of student finances would suggest that this is certainly not the case. The annual UK student debt survey, for example, found that students entering third-level education this academic year are expected to be £20,000 (€22,271) in debt by the time they finish their degree in eleven of the universities surveyed, considerably more than the national average which stands at £14,161 (€15,760). The average debt accumulated per year of study is £4500 (just over €5000).
At the beginning of February this year, Ireland’s Higher Education Authority (HEA) also published the findings of a survey which revealed that the average monthly expenditure of a third-level student (€1086.84) exceeds the average income (€893).
The report also concluded that “family financing is the predominant mechanism for funding the living expenses of students in higher education institutions followed by part-time work on the part of the student.”
Part-time jobs are an option for some, but this immediately strays into the never-ending debate on whether working during evenings and weekends affects study. The luxury of a choice in the matter may, however, be removed in the weeks to come as we wait for Batt O’Keeffe to present his fees proposals. Bank loans and part-time jobs may be the only option, with banks likely to provide specialised loan systems to assist students.
Whatever about a student’s ability to pay for loans or other debts though, it is hardly desirable to enter the workplace with such a squeeze on your income. This is probably the biggest downside to allowing debt to build up as a student; depending on the time allowed to repay the loan, students could find that a sizeable chunk of their wages in their first job goes towards paying off their debt.
As clichéd as it sounds, it seems that careful budgeting and saving is the only thing which will allow for the full enjoyment of your first big paycheck after college.