Student debt: Why it's never a good idea to turn to payday loans

With student debt on the rise, more and more people are turning to payday loans. But should they

Payday loan stores are to face tougher regulations after moves proposed by the Financial Conduct Authority (FCA) call on more responsible lending (Dan Kitwood/Getty Images)

Last week, an inquest into the suicide of Swansea student Courtney Mitchell Lewis, 21, found that he had overdosed on slimming pills after taking out a payday loan that soared from £100 to £800. His suicide highlights the danger that loan companies pose to students and unfortunately, this incident is not a one off – many students are turning to extreme measures to aid finances.

Lisa, 23, a media and communications graduate from De Montfort University, took out six loans from payday loans company Wonga at university, ranging from £40 to £90. She received the minimum amount of student loan, which did not cover her rent, and worked a minimum wage job. During her third year, her job cut her hours, which meant she struggled to get by. As she was already at the end of her overdraft she felt she “didn't have any other option than to take out a Wonga loan”.

Lisa is not the only student who felt she had no other option but to resort to a payday loan. Statistics from the National Union of Students show that 50 per cent of all undergraduate students regularly worry about meeting basic living expenses like rent and utility bills, with three per cent admitting to taking out high-risk debt. Although loan companies, such as Wonga, say that students are not a group they target, the ease of taking out loans sparks concern.

Kane, 23, studied business entrepreneurship at the University of Westminster. He said: “I took out a Wonga loan three years ago for £400. The interest was around 35 per cent of the total loan within 30 days and I kept getting emails asking me to take out more loans. I felt like they were targeting me because I was in a vulnerable situation."

Wonga made no comment.

Some students are also opening multiple bank accounts with overdrafts to help them financially. Five students from the University of Liverpool admitted to having second overdrafts with a leading bank, which offers a £2,000 overdraft in students’ third year. Although the bank states that this account should be the customer’s only student account, they do not always carry out checks and students are able to use the overdraft throughout their entire time at university.

One student, who wishes to remain anonymous, had four current accounts open at one point. If the banks asked if he had another current account open, he said that he did not and they did no further checks. He felt that he could not ask his parents for help with rent payments and at one point had £4,500 in overdrafts across the four accounts.

The student has also taken out eight Wonga loans in the past, ranging from £100 to £300. He said: “If I wasn’t getting paid until the end of the month, I would take out a loan to pay my rent and bills but then I was constantly worrying whether I was working enough hours to cover the Wonga fee.”

Jo Gornitzki, the money and insurance editor at MoneySavingExpert.com, says: “Payday lenders are promising quick cash loans until you get some money coming in. But interest rates are exorbitant, and the cost of the debt can easily snowball to epic propositions.

“If you’re a student, getting an overdraft is a much better option. Most students will need one while at uni, but make sure you’re not charged for it. Also go for the biggest 0% overdraft amount. Some providers offer 'up to £3,000', but how much you get depends on you and your circumstances.

“If you’re still finding it hard to make ends meet, speak to the National Association of Student Money Advisers, which will be able to offer advice.”

Samaritans support is available 24 hours a day, 365 days a year on 08457 90 90 90 or visit their website.