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MAKE SURE YOU CLEAR YOUR STUDENT DEBT!

This case study is true - the names of people and places have been changed to prevent embarrassment.

Sara Green, 25, from Hampshire, left Southampton University with a degree in German Studies, a mountain of debt and her bank breathing down her neck. She has debts is £14,000.

Sara owes the Student Loan Company more than £12,000. As Sara came from a disadvantaged background, she received a grant. But she needed the loan to make ends meet. Sara says "Without the student loan, there's no way I could have gone to university."

The spiral of debt

Sara was not naive and knew that taking up a place at university would be financially challenging. She work to supplement her income and rarely went out partying. Unfortunately, things took a turn for the worse in her final year. Her course required her to study in Germany for the autumn term but Joanna's bank (one of the big ones) would not allow her access funds in her current account.

The comfort of a credit card

Because she had no access to her funds, Sara turned to her credit card which she had hardly used up to this point. But because she had no other source of money, she got heavily into the red. As Sara says "It was either buy food with the credit card or starve".


Rising debts

Sara's debts rose to £1,700. This was £200 over her agreed credit limit. When she returned to the UK, Sara's bank charged her £100 for going over the agreed limit and asked her to pay £30 a month to bring the balance down to the agreed credit limit.

Paying interest only

Sara's debts rose to £1,700.Sara was furious and stopped the repayments when she realised that all she was doing was paying off the interest. "Paying the £30 seemed like a complete waste of money to me. I asked the bank if I could stop the repayments and save up to pay off a large chunk of the debt, which seemed the most sensible approach for student like me, but the bank said no way."

Credit check

If things were not bad enough, they suddenly got worse. One month before Sara's graduation, her bank reduced her account overdraft limit from £1,500 to £1,000. The bank advised her to apply for a graduate loan to make up the rest. When she applied, a credit check revealed the card debt and she was refused. Sara says "It seems completely unfair. The bank slashed my overdraft limit at a time when it was impossible for me to repay. I was plunged further into the debt spiral".

Struggle to clear debt after graduating

Sara was offered a job as a language assistant in Germany but was afraid she would not be able to afford to take up a new job. "I didn't count on the huge burden of debt I would carry with me after graduating. It was a nightmare". A spokeswoman from her bank said: "We have been fair to Sara. But we understand her concerns and are more than happy to work out a repayment plan with her. "

Advice from one financial expert

Michael Collins, an independent financial adviser, gave the following advice: "Sara has been frugal at university. Her debt on leaving is not as great as some students. It's a shame the bank would not grant her a student loan, especially as they knew how it came about with her problems in Germany. However, Joanna is best off working with her bank to find a solution. She needs to tell the bank about the job she has lined up in Germany and ask how best to maintain the relationship with her bank when she starts earning. She also needs to talk to her prospective employers in Germany and ask if they can help in her search for accommodation."

Change bank if necessary

Michael Collins went on to say, "Sara should look elsewhere her bank are not sympathetic. The the fact that her bank refused her a loan doesn't mean that all banks will refuse her too."

Check credit card rating

"Sara should write to the credit rating agencies Equifax and Experian, enclosing a cheque for £2 and SAE to both, asking for a copy of her credit report. The report should give details of any negative rating due to the credit card debt, and Sara is entitled to give her version of events which may help if she applies for any loans in the future."

Poor credit history

"Sara should be wary of wary of lenders that offer loans to people with poor credit credit histories. These companies often charge and enormous rate of interest."

Pay off your debts

"The bottom line is that if Sara can't sort out a plan with her bank - or get another bank to help her - she have to work off her debts before applying for any job abroad."

Beware of credit cards

Sadly, Sara's situation is typical of many new graduates. Even though she was frugal at university and tried to manage her finances carefully, she ran into debt problems. Credit cards are a notoriously expensive way of borrowing if you don't clear your balance at the end of every month. The fact the Sara's repayment to the bank only covered the interest is silly. But, simply stopping the repayment was not a good idea - banks view that sort of thing in a dim light.

Advantages and disadvantages of authorised overdrafts

Authorised overdrafts are an easy form of borrowing for university students. The disadvantage is that a bank can recall the facility at any time (although this is unusual).

Show willing if you get into financial difficulties

If you get into financial difficulties, contact your bank immediately and show willing to repay the debts. Under the Banking Code, banks are must look at cases of financial difficulty sympathetically and positively. If a bank in uncooperative, look around for another bank who may see your future earning potential and be pleased to take on a customer from a rival bank.

Change your credit card

If you have a credit card debt, you should also condier transferring it to a new credt card card provider. The credit card market is very competitive and many have low or 0% introductory offers. However, you need to be very disciplined and never use it.

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