The effect of student debt on the UK workforce
James Reed, chairman, REED
The UK has a growing student debt crisis. When Tony Blair first introduced the student loan system, it was designed to facilitate university access for prospective students from a broader range of economic backgrounds. 20 years on, his government's objectives have been achieved with half of young adults attending. However, with university fees now up to £9,250 a year - creating an average debt of £36,000 for graduates - a change to further education is needed.
Graduates paying the price
By the Government's own estimations, less than a third (30%) of current full-time undergraduates who take out loans are expected to repay them in full. This means student debt becomes a huge drain on a person’s disposable income for an excruciatingly long period of time.
What’s more, the burden often falls on the most vulnerable in society: those who tend to personally pay back more of their debt, and who are taking degrees that typically result in lower paid jobs after graduating.
And from a wellbeing perspective, the impact student debt can have on an individual’s mental health cannot be understated. Our research of over 1,000 UK workers found that nearly half (45%) admit to being stressed about their student loan, with over a fifth (21%) saying they often worry about it rising to 57% among 18-24 year olds.
The impact on employers paying the price
It’s clear then that student debt is weighing down a generation of young workers, affecting their happiness and productivity and potentially stifling entrepreneurialism - who wants to take out another loan when you’re already £36,000 in the red?
This contributes to a sluggish economy, with poor growth prospects and low consumer confidence. The problem is exacerbated by the size of the hole student debt has left in the UK economy, believed to be £121 billion in a recent government report.
For businesses, this should of course come as unwelcome news. Not only are their staff seeing less of their salary going into their pockets - affecting their wellbeing and quality of life - but also their industries are at greater risk from an unstable economy.
Finding a solution
For many young school leavers, there is a perception that you have to follow a distinct path in life by first studying for a degree and then getting a foot on the career ladder. Instead, the government and businesses need to lead a change in this attitude, by creating more alternative career prospects and promoting them as the excellent opportunities they are.
Many recent graduates may realise their degree wasn't good value for money and that other, cheaper routes into their career, exist. Apprenticeships and vocational courses offer young workers an opportunity to learn while you earn. These opportunities pay similar starting salaries to graduate- jobs but leave without the associated debt. Although university may be right for some, I urge all school leavers to consider the wider range of options now available to them.
Over 3.8 million apprenticeships were started between 2010/11 and 2017/18, showing that they are a popular option. However, this figure is dwarfed by the likes of Germany where apprenticeships are far more commonplace. In 2001, for example, two-thirds of young people aged under 22 began an apprenticeship and in 2003, one in three companies offered apprenticeships. We can and must do more, and the apprenticeship levy is certainly not the way to resolve it - having in fact led to a decrease in apprenticeship starts and viewed by almost a third of businesses as a tax.
At REED, our purpose is to improve lives through work. Although we don’t have all the answers to the student debt crisis, we understand that fundamental changes need to be made, starting with the government and businesses. In recognition of the crisis, and to draw attention to it we recently launched a prize draw to clear £50,000 of the lucky winner's student debt. Like so many others who graduated from university before student fees were introduced, I left with a degree and without the burden of debt. Now, I want to give others that experience and chance to excel in life. For companies and their people we want a motivated, skilled and happy workforce uninhibited by the worries of student debt. Debt free means Live free.
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