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Student finances – don’t let debt rack up

This week, Features Editor Ellen Atkinson explores the recent Wonga.com student debt scandal and discusses ways students can borrow safely

Student life holds a lot of temptations; debt can creep up on any one of us without a lot of warning. I think we can all probably relate to that sinking feeling in the pit of our stomachs as we check our bank statements, struggling to remember why we thought it would be a good idea to go to the Topshop sale or to buy a round of drinks for all of our friends, and crossing our fingers that there will be a ‘C’ for clear not a ‘D’ for overdrawn next to the balance.

On a more serious note, education is an expensive business, and whilst some students manage to work part-time to help finance their studies, it can be extremely hard to balance the demands of a job and university. Not to mention the fact that the current economic climate isn’t exactly ideal for potential employees. Conflicting schedules for outgoing rent and incoming student loan payments can often leave you penniless at certain points in the year, and then financially stable at others, whilst unexpected expenses such as a bond on a house, or a ridiculously high gas and electricity bill can wreak havoc with your bank balance. It is therefore pretty inevitable that students will end up in debt. However, money saving expert Martin Lewis emphasises that: “all debts are not the same! Some types of debt are MUCH better than others”.

Many of you will be aware of the recent scandal surrounding the short-term loan website Wonga.com. Wonga.com has faced criticism for suggesting that students should supplement their student loans by borrowing money from their company. It advises against student loans and towards short term loans on the premise that although the interest rates are higher, you only borrow it for a short amount of time. Students (including those at Cardiff University) have been tempted by the website’s offer of quick cash, which at first glance seems like an appealing alternative to student loans. Students can borrow relatively small amounts of money (a maximum of £1,000), practically instantaneously and Wonga’s website suggests that students can borrow money for any kind of extra expense, even to pay for a holiday! However, with extortionate interest rates of 4,214%, borrowing from Wonga.com is far from a quick-fix solution to student debt. When you compare this to the 1.5% annual interest rate which comes with government-backed student loans, the problem is even clearer to see. Therefore, although the offer is undoubtedly a lucrative commercial opportunity for the company, it will in all likelihood worsen a student’s financial situation in the long run.
Pete Mercer, the vice president of the National Union of Students has accused Wonga of using “predatory marketing” to target vulnerable students, stating that “it is highly irresponsible of any company to suggest to students that high-cost short-term loans be a part of their everyday financial planning”. Martin Lewis has also launched a twitter campaign called #WongaLeaveKidsAlone, prompting the company to remove the page which specifically marketed student loans.

Whilst it can be incredibly tempting to borrow a few hundred pounds from a short-term loan company, they should not be the people that students turn to for help. Using websites such as Wonga.com, or any loan company with a commercial interest rate (anything above 6%), is never a good idea, and is not a viable solution to student debt. In the majority of occasions, other forms of borrowing are available. One of the first points of contact should be your bank. Most student bank accounts offer interest-free overdrafts, which can often be extended if needed. Having said this, it is important to remember that once you are no longer a student, banks will start charging a high rate of interest on any remaining overdraft.

Another option is to turn to the University; their main priority is students’ welfare and Cardiff would not want students to use loan shark companies rather than contact them for help. The University is well aware of the financial pressures that students face and have measures in place which are designed to prevent students’ money worries affecting their studies. The University Hardship Fund is definitely something to consider. Any undergraduate or postgraduate student enrolled on a full-time degree scheme is eligible for this fund, which provides a non-repayable grant for unforeseeable financial crises.

The University also offers emergency loans, which are repayable, and tend to be given out to cover things like basic food costs. Thirdly, students can apply for a financial contingency fund. Supported by the University, the Welsh Assembly Government provides this fund to students in need on a discretionary basis. The average grant awarded in the academic year 2010/11 was £400, however, in exceptional circumstances, funds of up to £3500 can be given. Lastly, the Student Advisory Service provides a number of grants which are funded by the University or by independent charities. The Student Support Centre at 50 Park Place can provide further information about all of the financial help available to you, or check out their website at: http://www.cardiff.ac.uk/financialsupport/index.html

So remember, there is support out there and if you are worried about your finances then talk to someone about it!

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