Are private student loans a good idea? Questions for Future Finance

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Brian Norton is the CEO of Future Finance, a private student loan company; “a charming American” as he was described in an email by his representative. Norton has always had a strong belief in the power of education, “raised in a fairly normal, middle-class family outside of Chicago, but by good luck was accepted to a great university and have had a transformed life ever since.” Norton attended Harvard University, where he studied History, before doing an MBA at the University of California. He has spent his career as an entrepreneur building finance companies. His first big success was a student loan company in the US, where student finance is notoriously difficult to acquire. He emphasises that irrespective of financial situation, the best students should always have access to the best education.

Before beginning Future Finance, Norton and his team had been observing the UK environment closely, “we noticed that costs were starting to rise at the same time that average incomes were relatively flat, we saw an opportunity to start a business helping students here.” They also discovered that “there are very few funding options for UK students outside of the government-run Student Loan Company. In our view, the UK government has done a better job than most of its European counterparts in terms of subsidising higher education. The SLC is an effective and low cost way to help students meet some of these costs, and this should always for the first port of call for those who are eligible. But often these loans only cover part of a student’s total financial needs.”

The demand for this financial support is clear. “A very telling statistic is that in our first year of operation (we started business in May last year) we received over 13,000 applications from students at every single university in the UK. Over 60 of these applicants were Lancaster students, who requested a total of more than £400,000 in loan funds from Future Finance.” But what is more intriguing is the extent that Future Finance have gone too in terms of acquiring the views of individual students on university finance and the unfavourable situations they have found themselves in as a result. The company regularly survey a group of 1000 students from across the country. In their last report, 27% of these students had outstanding pay day loans and over 50% had owed money on at least one credit card, which charge high rates.

“Interest rates vary depending on personal circumstances, but our rates post-graduation are between 6-13% with repayment terms of 10 years, although there are no charges for paying the balance off early.” Future Finance does not aim to compete with the Student Loan Company, but to supplement the loan the student already receives. “As I mentioned earlier, the first option should always be the Student Loans Company. We don’t compete with the SLC, in fact we advise anyone who applies to us to ensure they have made the most of this facility before looking elsewhere as this is the lowest cost option available. Future Finance helps students who need financial help beyond what the SLC can lend them.” First and foremost, Future Finance aims to cover the excess needs of students and not to be a primary source of financing.

“We ask Future Finance borrowers to make small ‘maintenance’ payments from the outset whilst they are still in university. These payments are based on the total loan amount and can be as low as £15 per month and will never exceed £75 per month. We think this is a very important aspect of our loans. By doing this, we are encouraging borrowers to manage their finances in a responsible way and to get used to paying their loans back. They also get to build up a better credit history whilst at university which can help them in the future.” Three months after graduating, students then start paying off the loan properly. “We give our borrowers four repayment holidays of three months each during the life of the loan, with the ability to take two of these back to back. This helps, for example, when people are having trouble finding a job, or just want some time off to go travelling.”

The most telling statement of our interview with Brian was this: “We think this compares very well with the other alternatives, although we strongly advise everyone to research thoroughly all options available to them and seek advice from their parents or universities before making a decision.” Throughout our interview, Norton emphasised that students should look to the SLC first and foremost, and that loans will be granted on the basis of who is most suitable, going further than other loan companies to consider your course, your university and resultant potential earnings. For some, private loans are the best option, but they also come with a health warning, and you should be pragmatic and well-researched before you take one out. It’s better for the loan company, and more importantly, it’s better for you.