Going for broke
Tempted by that cut-price loan-offer? Watch out, urge the teaching unions, who say that growing numbers of teachers are getting into debt.
One finance company claims that its loans to teachers have increased by 20 per cent over the past year. Yet, while they are still prime targets for credit companies who see them as a "secure risk", teachers are now far more likely to lose their jobs through redundancy or stress-related illness, according to Esme Corner, national treasurer of the National Association of Headteachers.
"Teachers are coming under increasing pressure to borrow money," she says. "The majority of our members are circumspect, but people's circumstances can change dramatically, even over a short space of time." Teachers may take on a loan in good faith, but then find they are unable to repay it.
Mrs Corner cites long-term illness, usually stress-related, redundancy and suspension as the main causes of heads' and their deputies' financial problems. Pressure on school budgets means that a deputy head's post is sometimes the first to go, while retirement through ill-health is soaring (see Personal Finance, TES, March 15).
Suspensions are also rising. These can follow an unfavourable inspection report or a dispute with governors or the local authority. And negative equity means that many teachers can no longer take the escape route of re-mortgaging or selling their houses to pay off debts.
The Teachers' Benevolent Fund is finding that a lot of the applications for its grants now come from teachers in debt, and that credit-card debt is the most common financial problem. Many applicants are single parents with a recent marital breakdown, says Carol Lynch of the TBF.
They can get into debt because of the difficulty of adjusting to a single income, she says. But younger teachers are also suffering. "Instead of getting a job for life, they're doing supply teaching, which isn't paid during the holidays," Ms Lynch said.
While the majority of its members are prudent, the National Association of Schoolmasters Union of Women Teachers says it is not unusual for teachers' debts to reach Pounds 20,000. "It's far too easy for teachers to get credit, " says Jerry Bartlett of the union's legal department, which will arrange debt counselling for members in trouble. "Many credit institutions are very irresponsible. They will pressurise people whom they regard as a safe risk into taking out more loans."
Cash for home improvements, furnishing and cars are the most common reasons for taking out a loan, says Mr Bartlett. "It's extraordinary how many teachers take out a loan for a new car just before they lose their jobs," he adds.
But teachers are not being wildly extravagant, according to Graham Terrell, spokesman for the NASUWT. They need to borrow money simply to maintain their standard of living, he says. "People prefer not to take out loans unless they have to. I can't believe teachers are borrowing money because they want to go further afield on their holidays, or buy bigger cars."
Figures from the Co-operative Bank, which is offering NASUWT members a competitive credit deal, confirm that teachers are not exactly the last of the big spenders. Although nearly 500 members took out loans totalling almost Pounds 1m during the two-month period after the offer was launched, most loans were for less than Pounds 2,000.
The NASUWT regards the Co-operative Bank as the sort of responsible lender it would like to see more of. Every loan applicant has to send the bank confirmation of income, and a loan will be declined in a number of cases says Paul Randon, a regional sales manager for the bank. Someone using the money to reschedule extensive credit-card borrowing will not be offered a further loan, he insists.
"The last thing we want is members complaining to the union that they've got themselves into trouble because of the Co-op Bank," he said.
Fixed interest rates are also the rule. No matter how much you borrow between Pounds 500 and Pounds 10,000, the interest rate is always 15 per cent APR. "We would hate to be accused of persuading someone to borrow more than they can afford by offering lower rates for higher loans," said Paul Randon. The bank is now offering preferential loan arrangements to employees of specified schools, universities and colleges.
Frizzell, which offers loans of between Pounds 7,500 and Pounds 10,000 at 14.8 per cent APR to NAHT members, (smaller loans are more expensive) has a very competitive Payment Protection Scheme which covers repayments if a teacher is made redundant or becomes sick.
But Esme Corner advises people to scrutinise the fine print of all loan agreements; some companies may penalise people who try to pay off the debt early, for instance. And teachers should give themselves time to find the best deal. "Don't be lured by the first offer that pops through the letter box, " she urges.