Student debt in the UK: An economic psychological perspective

1
Student debt in the UKAn economic psychological
perspective

• Adrian J. Scott
• University of Bath

2
Outline

• Student debt in the UK
• Theoretical and political context
• Paths to economic independence
• Areas of research relevant to economic
  psychology
• Attitudes
• Money management
• Well-being
• Deterrent effect
• Economic competency
• Interpretations of debt
• Implications

3
Student debt in the UK

• The term student debt is generally used to
  encompass all forms of undergraduate borrowing,
  irrespective of its size, source, or the
  individuals ability to repay.
• 1990
• Introduction of student loan scheme
• 1998
• Abolition of maintenance grant, introduction of
  tuition fee contribution
• 2006
• Universities able to charge tuition fees up to
  3,000

4
Theoretical context

• Life-cycle hypothesis
• Studying is an investment in human capital
• Students are economically rational
• Behavioural life-cycle hypothesis
• University is not necessarily rewarded by higher
  salaries
• Students lack self-control

5
Political context

• Two lines of argument
• Student debt is not a cause for concern students
  are not being penalised at the point of entry
  they are being asked to contribute at the point
  of reward.
• Student debt is a cause for concern the
  increasing cost of university has a detrimental
  impact, especially in relation to economically
  disadvantaged groups.

6
Paths to economic independence

• Worker model
• At the end of compulsory education young people
  get a job, the income is treated as their own,
  and some time later they set up their own
  household, either alone or on marriage.
• Student model
• At the end of compulsory education young people
  proceed to higher education or further education,
  a mixture of state a family grants are treated as
  their own, and leave home to live in shared
  accommodation.

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Attitudes

• Higher levels of debt associated with more
  tolerant attitudes towards credit and debt.
• Levels of debt rose most sharply between the
  first and second years of study.
• Attitudes towards credit and debt changed most
  between the second and third years of university.
• School pupils have the lowest levels of tolerance
  towards credit and debt.
• Final year undergraduates have the highest
  tolerance.
• Postgraduates and ex-students have lower
  tolerance, not as low as school pupils.

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Attitudes

• Graduates
• less keen on saving before making purchases.
• more likely to agree loans are a good thing.
• less likely to agree borrowing is wrong.
• Student loans was the only variable to have a
  significant impact on graduates attitudes towards
  credit and debt.

9
Money management

• Students
• poor at managing their finances.
• use different bank accounts to manage their
  finances.
• find it difficult to limit expenditure during
  periods of financial hardship.
• who view their income as fixed more likely to
  budget.
• Males have a more relaxed money management style
  to females.
• Males spend more on social activities and alcohol.

10
Wellbeing

• Poorer mental health significantly associated
  with
• difficulty paying bills.
• paid employment.
• Depression and anxiety related to
• students interpretations of their borrowings.
• Students anticipating excessive debts upon
  graduation more likely to suffer severe
  depression and anxiety compared to those
  anticipating manageable debts.

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Wellbeing

• Perception of student debt reflected in mental
  health levels
• Students categorised as experiencing high debt
  worry felt greater tension and unhappiness
  compared to other students.
• Neither paid work or amount of student debt were
  found to be associated with mental health levels.
• Financial concern and mental health
• High financial concern was a significant
  predictor of poor mental and physical health.
• Levels of debt were not.

12
Wellbeing

• The nature of the relationship
• Longitudinal study demonstrated the nature of the
  relationship between students financial
  difficulties and depression.
• Students experiencing financial difficulties were
  more likely to experience depression during their
  second year at university.
• This relationship was still present when
  pre-entry levels of anxiety and depression were
  controlled for.

13
Deterrent effect

• Educational ability and achievement level are not
  the only factors influencing participation in
  higher education.
• Debt aversion was an important factor in
  deterring students from low-income households.

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Economic competency

• Students are not rational
• When you first come to university and youve got
  like a grand its free money Wow Im rich.
• Theres no point in worrying about it (debt)
  now.
• Its I havent got a fiver, not that I havent
  got 1,000 or 2,000.

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Economic competency

• Students are not rational
• When I took out my student loan I didnt really
  think about the repayments.
• Banks and other lending institutions are not
  making it clear to students how difficult it is
  to pay back large sums of money.
• From a personal point of view, if I had known
  how much a degree in psychology was going to cost
  me over the four years I would never have done
  it.

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Interpretations of debt
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Implications

• Economic socialisation
• The student loan scheme enhances economic
  knowledge, sophistication and responsibility.
• The student loan scheme engenders a debt
  culture through the legitimisation of borrowing.

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Implications

• Life-cycle hypothesis
• It is rational for students to borrow money to
  finance university as they will receive larger
  incomes in the future.
• Behavioural life-cycle hypothesis
• Myopia
• Fungibility
• Well-being
• Can either of these models explain the impact
  student debt has on well-being?

19
Radio advertisement

• Is the thought of paying back your university
  tuition fees preying on your mind?
• Because, from next September, full-time students
  can get a tuition fee loan and you dont start
  paying it back until youre in work and earning
  over 15,000.
• On a salary of 18,000 that means repayments of
  just 5.19 a week. Study first, pay back when
  youre earning.

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References

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References

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