The Island Approach to Student Debt Management
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The pursuit of education and student loans are two inseparable things in the economy. Since the recession, there has been a rise in concerns regarding the debt situation. It was particularly alarming a couple of years back when a news report highlighted that the student debt on average was hovering around £53,000.
Since then, the situation hasn’t improved much. There is still the dire need for effective managerial strategies and an incentive-oriented approach by which average students can pursue their educational ambitions.
Understanding Major Themes
The National Union of Student (NSU) compiles important facts and figures regarding the cost of education in the country. As per its most recent analysis, the gap between income and expenditure is now roughly £7,600.
In order to understand the nature of student debt and identify solutions, three themes can be identified.
· Students who are more or less likely to accrue debt
· Debt and the higher education demand
· Role of debt in influencing study behaviour, mental health and professions.
In order to address the three problems highlighted above, compartmentalisation of debt is a one-point solution. Financial compartmentalisation is also dubbed as the ‘island approach’. Conventionally, what happens is that students have their ongoing expenses jumbled together with rising debt.
The idea is to separate the debt/revolving balance from ongoing expenses in order to manage debt efficiently. The loan system from the UK government is extensive, but to manage optimally, external resources are required.
According to SettleMyDebt, the most efficient way to seek freedom from debt is settlement. And thankfully, flexible plans allow students or anyone else for that matter to opt for payments based on their income. A tailored approach would also help eliminate unnecessary expenses, while at the same time offering rapid debt settlement. Also, the home of the individual stays risk-free, unlike in the case of an IVA.
There are some important statistics to consider understanding the need for compartmentalisation. As per the NSU, students in UK have an average expense of £21,440 (includes tuition, books, rent, travel, living expenses etc.). In comparison to their expenses, the potential income amounts to £13,747 (tuition fee loan/maintenance loan/grants). This means the short fall for an average student is £7,693.
Keeping the loan amount and running expenses such as rent and living cost would increase the shortfall by more or less £2,000. However, compartmentalisation ensures that the debt servicing ability of a student is not hampered by an increased shortfall.
Students can take the following approach for compartmentalisation:
1. Grow at the pace the money/income allows them to.
2. The student loan should be applied to the areas it is destined for (do not over-borrow).
3. Do not meddle with credit card gimmickry or play math games with lenders.
4. Use online resources for planning personal finance.
Pursuing Education and Managing Debt
Looking at a £9,000 shortfall is not easy for any student, but it is also not viable to forgo academic ambitions because of financial constraints.
Instead of financing education mostly through loans, students should try to obtain student grants that they stand eligible for. Different research, government and non-government organisations offer a wide range of grants in diverse educational sectors. Also, performing academically well is an incentive in and of itself to stay away from loans.
Student debt within the UK is a problem, but responsibility and financial intelligence on the students’ part can bring them closer to being debt free.