Students struggling for money are taking on more debt to stay afloat at university

A third of undergraduates are using loans, overdrafts and credit cards to pay rent at university, the National Student Accommodation Survey 2020 has found. Some are even taking out payday loans to pay their landlords.

The annual research by money advice site Save the Student polled 2,168 students, and reveals widespread borrowing among undergrads. Although 36% turn to commercial lenders, the figure jumps to 60% when sources include family, friends and employers.

Naomi (not her real name) studies at the University of Leeds. She says: “I owe almost £3,000 on overdrafts, plus £800 on a credit card (at around 30% interest). All of this was to pay rent in shared houses.

“I took a Smart-Pig loan for £200 to pay rent in my 2nd year. In the 3rd year I got a credit card, and put about £400 on it. Then I had to open a second overdraft.”

According to the survey, students spend an average of £126.42 a week on rent (£547.82 a month). However, an FOI request by Save the Student puts the average Maintenance Loan award at just £540 a month for rent AND living costs.

As a result, most of this government funding goes straight to university or private landlords. Meanwhile, 1 in 10 students (11%) say rent is “a constant struggle”. A similar number (9.7%) have missed payments, while 2% have experienced eviction for not paying rent.

Lucy, a 3rd year student at UWE Bristol, juggles four overdrafts to keep up with rent. “When I lived in uni halls my rent was £8,000 a year (the cheapest I was offered) and my student loan was £8,500.

“I’ve got £950 in a paid Monzo overdraft, which costs £15 a month. There’s £1,800 on my Santander overdraft, but this is free while I’m studying. There’s also Nationwide (£250) and Halifax (£1,000) – I pay for both of these each month.”

The high cost of student accommodation (compared to the funding available) is creating a stark divide. On average, stay-at-home students pay just £53 per week for rent. Those in university halls pay £142, or an extra £4,628 over a year.

Where do students borrow money from to pay rent?

  • Parents (37%)
  • Bank overdraft or loan (28%)
  • Friends (13%)
  • The university (7%)
  • Credit card (6%)
  • Payday loan (2%)
  • Employer (1%)

Parents are the first port of call for loans – despite already contributing an average of £2,542 towards rent each year.

Students whose families can’t afford to help as much (or whose parents’ income reduces the Maintenance Loan award) may find consumer credit, such as loans and credit cards, to be a costly alternative.

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Unlike the Student Loan, most forms of credit come with uncapped interest rates, plus serious consequences for late repayment, such as fees or credit score damage. Anything borrowed also has to be repaid regardless of income or employment status.

Lucy adds, “I’m careful with my spending and don’t live a lavish lifestyle, but I often have to feed myself on £10 a week, or prioritise rent over other bills. This has even led to me being chased by debt collectors.”

Just over half of undergrads (54%) told the survey that worrying about rent affects their health. Taking on the risks and demands of consumer debt, especially without a steady income, is only likely to add to their stress.

Jake Butler, Save the Student’s money expert says the survey highlights an urgent problem with student funding. He adds: “This discovery that so many students are risking serious debt in order to just pay for student accommodation is worrying. 

“It's unfair that students are forced to borrow to keep a roof over their heads, and without being warned about the impact debt may have on their wellbeing and future finances. Students should be able to focus on studying, and not on trying to climb out of a debt spiral caused by shortsighted student funding and over-priced rents.

“The Maintenance Loan isn't enough to live on and, evidently, most of it goes to landlords. The system is long overdue government reform.”

Sue Anderson, Head of Media at StepChange Debt Charity, comments: “Students are among the most financially stretched groups, so it’s no surprise university can be a time when debts build up. Tuition fees and maintenance loans often won’t cover the essentials for many students, who can find themselves turning to consumer credit like overdrafts or private loans to survive.

 “These forms of credit can seem attractive as they often won’t require repayment until the end of your studies. However, many students face a cliff-edge upon finishing university when repayments kick in and they are likely to be financially vulnerable.

“We’d encourage those lending to students to consider these pitfalls, and to ensure their products don’t end up causing financial difficulties. For any student struggling with debt, help with managing your finances can be found on our website: www.stepchange.org.”

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