Students in debt should be allowed to graduate, OFT says

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75% of universities currently impose sanctions on students with unpaid debts such as accommodation and childcare bills, the OFT found.

Many universities don't allow students who owe them money to graduate or progress to the next academic year, while others restrict access to student services.

As a result of the investigation, the OFT wrote to universities around the country warning them that sanctions could break consumer law.

55% of 18-24 year olds say their debts have increased over the last five years, according to research released last month by Demos.

Unless universities significantly change their policies as a result of the OFT's intervention it's likely that an increasing number of students with financial problems will find themselves stuck: unable to get a job to pay off their debts without graduating; unable to graduate without paying off their debts.

Debts shouldn't stop graduation

To prevent that untenable situation, the OFT said in its report, universities should consider withdrawing unfair sanctions on students in financial difficulty.

Some of the sanctions deemed unfair by the OFT include:

• Enabling universities to restrict access to facilities that are critical to study.
• Preventing students from re-enrolling on to their next academic year.
• Preventing students from graduating, attending their graduation ceremony and/or receiving their formal certificate and certified result transcripts.

The National Union of Students (NUS), whose complaint sparked the OFT investigation agreed.

The NUS Vice President for Welfare, Colin Maguire, described such sanctions as "disproportionate" and suggested that they only put further stress on students already struggling with debt.

Michelle Highman, CEO at The Money Charity, told us that by forcing students to make debts to their university a priority, universities could easily push young people further into debt.

"Students who are in debt to their University obviously should pay back the money they owe. The current system, however, effectively allows universities to take priority over other debtors, meaning that a student could be forced to pay back a library fine over paying other real 'priority debts' - like mortgage, rent or utility bills - which is clearly unreasonable," she said.

"We're really pleased to see the OFT tackling this, and urge Universities to take action," Ms Highman added.

But alternatives could be worse

However, forcing universities to withdraw academic sanctions could lead to harsher measures.

Among the 25% of universities that the OFT found were not imposing academic sanctions, some are using commercial debt collectors instead.

If more universities go that way as a result of this ruling, that could also be worrisome.

Commercial debt collection practices have been the subject of enquiry themselves in the past. In 2011, for example, the OFT was forced to issue a warning against debt collection firms using underhand and even aggressive methods to recover money.

Debt collectors have also been linked to the use of 'charging orders' (more here), a way to threaten borrowers homes, even when their debts are unsecured.

On the other hand, the OFT also identified some universities that were making greater use of other alternatives including:

• Advice and early support of students to prevent debt becoming a huge burden.
• Withholding services of the same type, such as access to the library, if library fees are overdue.
• Encouraging timely payment with incentives.

The methods universities use to deal with students that owe them money is likely to continue to come under the spotlight as the number of young people facing serious debt problems increases.

Fighting student debt

According to research released by Demos last month, most people under the age of 35 have over £2,000 of non tuition fee debt.

However, researchers found that a significant minority - 19% of 18-24 year olds and 22% of 25-34 year olds - owed more than £10,000.

"When we talk about rising debt levels, it is young people in their 20s and 30s who are bearing the brunt," Jo Salter, the study's lead researcher commented.

The Demos report revealed that "unexpected expenses" and "affording the basics" were among the most common reasons for respondents to get into debt.

The Money Charity told us that, in their experience, unsecured debt is a widespread problem and a major concern for many students.

Universities that restrict access to valuable support and advice only compound the problem of debt, leaving students struggling to cope on their own.

Stopping students from progressing into the jobs market or, in the case of students further away from graduation, preventing students from accessing their next student loan payment is clearly counter-intuitive.

Banning sanctions outright won't help students facing debt worries, unless universities make better provision for them, however.