Payday lenders have started aggressively targeting university students who are struggling with student loans. It's time the government recognised this and took radical action to clamp down on unscrupulous lenders.
There was a time when a student’s only problem was trying to decide which drinking game to play. How times have changed.
According to the Reverend Jude Drummond at the University of East London, students have turned to payday loans for financial help, or worse, prostitution and sex work.
Gareth Smith, director of student life at UEL, said: “Payday loans are not appropriate for students; they do not have the regular income to support them.”
But why aren’t such loans appropriate?
For a start many universities offer crisis loans for those who are in extremely dire financial circumstances. Such loans are low interest and easily obtainable through the student union.
Activist Matthew Fulton, who has worked with the think tank Compass on their End Legal Loansharking campaign, pointed out to me, from his own experience at the University of East Anglia, that there are short-term loans on offer for around £300 over a period of four months, until the student loan installment came in, for which the university charged 3 per cent interest.
As he told me: “They were financed by the student union and interest covered running costs alone.”
This wouldn’t be the first time payday lenders have tried to get students to take out loans with them.
Back in January 2012, the high cost credit seller Wonga received criticism for suggesting “students take out high cost short-term loans to buy plane tickets to the Canary Islands”.
The company sold their loans as something students could “substitute [as] part of their student loan”.
At the time Wes Streeting, chief executive of the Helena Kennedy Foundation and a former President for the National Union of Students, told me:
“Legal loan sharks like Wonga seeing students as a potential market is a symptom of the levels of hardship facing students in the current economic climate. Government student grants and loans barely cover living costs and working part time has become part and parcel of the modern student experience.”
“Wonga’s suggestion that its short-term, high interest, loans are an alternative to low interest student loans provided by the government is highly misleading and self-serving. The government’s student loans are probably the lowest interest loans that students will ever receive during their lives,” he added.
According to the Telegraph, the UEL, which claims to be the first University to introduce the restrictions, is considering completely blocking access to payday loan websites on its campuses while advising students to seek alternatives including debt counselling or credit unions.
While, ironically, credit unions are obliged by law to cap the cost at which they sell credit to consumers at 26.8 per cent, payday lenders have no interest rate ceiling legislated for.
This is one of the reasons why representative interest rates from payday lenders are between 1,734 and 1,737 per cent APR (and that’s before you start to see the 2,670 per cent representative rates charged by Quid dot co dot UK, or Cash Lady which is now being represented by Kerry Katona).
Research by R3 has shown that 60% of people who took out a payday loan have regretted the decision afterwards, over half of those who took out such loans felt their financial situations had gotten worse, and 68% admitted they were denied credit elsewhere.
Back in the day young people, at university, who were expected to excel after undertaking three year courses, were battling with which bank to take up on their generous offers; overdrafts, gifts and the rest.
Now it seems the opposite is happening, with more and more young people in hock to payday lenders.
It doesn’t get much better after university, either. The International Labour Organisation have estimated that global youth unemployment will rise to 13% by 2017, and Britain’s own figures reflect a similar pattern. The TUC recently warned that the issue has reached crisis point.
Young people bear the brunt of the this. Recently the Centre for Modern Family revealed that one in ten young people are taking out high interest credit -and the lenders themselves are playing on this.
Until the government delivers some more radical thinking around personal debt and the cost of living, personal economic crises are going to rise.
Now that there is thinking taking place at a policy level about energy companies and the cost of living, including food prices, we must not forget that students are heavily burdened citizens, too.