Why is a new class of student-loan debtors so lucrative?
Student-loans are a lucrative source of income for people on the edge, but a new trend has emerged where people are borrowing to pay for things they don’t need.
In the latest ABC News Online Money blog, MoneyWatch Australia’s executive director, Mark Cianfrance, explores why student-debtors are finding ways to make a lot of money.
The trend emerged after the NSW government announced it was tightening up on student loan debt, and the issue has been on the minds of a lot more people in recent months.
It is now common to borrow more than the cost of living for a home, buy a car, or attend a wedding, among other things.
Students also have access to loans for the first time, which means they have less need to borrow for other things, such as a car loan, that they normally wouldn’t have to pay back.
Student-loaned debt, the average amount borrowed, has more than doubled since 2014, to more than $20,000 per student.
According to the Australian Bureau of Statistics, students who took out loans between 2015 and 2019 have seen their average student loan balance double to $22,000.
More: More than half of students borrow from a loan company, and some are still using a loan provider for a second time, according to data from the Higher Education Statistics Agency.
But how can someone who doesn’t need a car get the money they need?
According the latest figures from the Bureau of Economic and Social Research, more than half (52 per cent) of all student loan borrowers are aged between 16 and 24, and this is an increasing trend.
The average student debt balance for borrowers under the age of 24 was $11,400 in the 2015-16 financial year, according the ABS.
What makes it so lucrative for student loan holders?
The big difference is the ease of borrowing, says Cianfiornia.
He says a new student-borrowing trend is emerging where people on student loans are borrowing for a variety of things.
For instance, if you need to get a car fixed or a job done, a loan will cover the cost.
In some cases, a student-related company will also cover a loan.
Cianfornia says that many people on this list are already living with parents, or in their first year of studying.
“It’s just easier for them to borrow from people who they know already have parents who are in that situation, because they know what they need,” he says.
For those who are already in that position, he says there are plenty of opportunities for people to borrow.
If you’re looking for a new source of financial income, Cianford says you might be better off starting with a bank.
Many banks offer loans for new borrowers, he said.
You’ll need to be able to pay your own fees.
For example, if a loan is going to cover a $300 monthly rental, you’ll need the $300 back within six months of the loan being granted, or your loan will be declined, he explains.
Borrowers will also need to have a bank account, he suggests.
So where to start?
You could consider taking out a student loan to cover the costs of your next big purchase, or even get a mortgage.
Alternatively, you can take out a loan to buy a house, and take out the mortgage in order to pay down the balance.
Aboriginal student loan forgiveness is a possibility, but it is highly controversial and not universally available, according Cianfinciornia.