Student loan rates more than double

Figures released from various sources this summer paint a bleak picture for students' finances.

Currently, the main source of financial support for students is the Student Loans Company. It is considered to be the cheapest way for students to borrow money in order to finance themselves.

From September, however, students will be expected to pay an inflation rate of 3.1% on their student loan for the 2003/04 academic year, compared with 1.3% for the previous year. This massive jump is due to March's rise in the Retail Price Index (RPI) - but it has effectively narrowed the gap between a student loan and a commercial loan, where the base rate is currently 3.5%. The Student Loans Company has advertised the increase in the national press, and annual statements will announce the change to existing students.

The Department for Education and Skills (DFES) are keen to ensure that people are aware of the difference between interest and inflation rates:

"We have to be clear - it is not an increase in interest rates, but inflation rates. Students do not pay interest on a student loan. If there is a general increase in inflation, the inflation on everything rises, said a spokesperson for the DFES.

This information is likely to be of little comfort to students, however, who are feeling the burden of increasing debt.

"This is just the last thing we need," says Sam Eells, student in Business Economics at Reading University. "I don't receive any financial support from my parents, and am therefore reliant on my student loan. I think it is bad enough that students have to take out loans to fund themselves, but if the inflation rate continues to go up, myself and other students in the same situation will be paying back the loan for years."

Student loans are available to all students in higher education and are designed to help students meet living costs. All students are entitled to apply for a loan through their local education authority.

All students are entitled to 75% of the maximum loan, regardless of income or financial status. The remaining 25% is means-tested and depends on parental and student income. Graduates are usually asked to start repaying the loan in the April after graduation. Repayments are collected when graduates are earning ?10,000 or more.

As well as the mounting debt of student loans, students and parents also have to consider the cost of tuition fees. The maximum that a student will be asked to pay is ?1,125. As with loans, fees are dependent on family income.

The rise in inflation rates on student loans is just the latest piece of bad news for students. Only last week, a report published by Barclays predicted that students will be accumulating debts of ?17,561 by 2006 and ?33,708 per graduate by 2010, compared with today's debt levels of ?10,997. These shocking figures are based on the future increase of tuition fees to ?3,000 and the probability of higher living costs.

Barclays estimates that a student's annual outgoings in 2010 - including rent, food, and books - will total ?11,236 for every year at university, up from ?7,859 in 2003. The average amount available from the Student Loans Company is estimated to be ?3,883 per year in 2010 - leaving a funding shortfall of ?7,353 for every student. After using the maximum funding available to students from the Student Loan Company in 2010, students will still need to find an additional ?22,059 to fund their whole degree.

Natwest also released details of their report last week. The Natwest 2003 Student Money Matters Survey estimated that a three year degree will cost students a staggering ?20,517. The report also shows that student debts are increasing annually. Natwest found that the average graduate debt figure has risen by ?2,489 from 2002 to ?8,125 this year, and one fifth of students questioned believe it will take them more than 10 years to pay off.

Such huge increases in graduate debt are especially worrying since this year has seen a reduction in the number of graduates finding employment - and those that do find jobs are accepting lower salaries than last year. This year's average graduate salary has fallen from ?13,422 last year to ?12,659 in 2003. There has been an 8% decrease in graduates finding work before their course finishes (to 28% in 2003) and a 14% increase in the number of graduates living with their parents to save money (up to 64%).

Dan Ashley, NUS press officer, believes that these changes will just increase students' struggle to finance their way through university. "The news about the rise in inflation is hardly timely. Essentially, students are in the situation that they have little choice but to borrow this money, any increase going to lead to a change in life choices - it will mean that debt is hanging over their heads for longer. Any other further debt is going to pile on the misery."

Does Dan think that this increase in the inflation rate will contribute to making university less accessible for poorer students?

"Although I don't think a rise in inflation rate will have that much affect on its own, together with all the other growing costs, it could have a knock-on effect. Essentially students from wealthy backgrounds will be able to pick and choose what universities and courses they opt for, whilst others will be left with little choice."

"If our government wants us to compete globally, then it needs to allow the most intelligent to go to university, not the richest."

Universities UK and the Higher Education Funding Council for England (Hefce) commissioned a survey last February in order to gauge students perceptions about debt and higher education. The report found that students who were indecisive about going to university were put off by worries about huge debts and were of the opinion that existing funds available to students were insufficient. The study also found that potential debt problems were putting off the very groups the government wants to get into university.

With the cost of higher education spiralling, many potential students are faced with the decision of whether or not to go to university, and whether or not they should stay at home to save money. Martin Binder, head of current accounts at Barclays, believes that although students are facing financial difficulties, getting a degree is still worth it: "There is good news for students in that those who go to university continue to earn higher salaries than their peers who started work earlier."