Students are "sleepwalking into financial crisis" because of expensive tuition fees and the effects of the UK’s worsening economic situation, warns the National Union of Students (NUS).

According to a report published this month entitled ‘Broke and Broken: A Critique of the Higher Education Funding System’, a widespread review is required to address the increasingly unsustainable levels of debt that students face upon graduation. Tuition fees, which are currently capped at £3,145 per year but are likely to be increased up to £7,000 per year, are leaving students with an unmanageable financial burden.

Students also face increasing monetary difficulty as a result of the downturn in the UK economy. Rising inflation, particularly in essential commodities such as food and energy, are forcing many full-time students to resort to commercial loans or paid work.

Although rising inflation affects the entire UK population, students are amongst the "most severely affected" because they spend a greater proportion of their income on items which have the highest rates of inflation. In other words, whilst general inflation is approximately 4.7%, average food prices have increased by 10.6% in the last twelve months.

Rising prices nationally are reflected in the increased cost of Southampton University’s goods and services. The cost of printing from the Information Systems Services (ISS) has increased by 25%.

A recent poll by the NUS also indicates that many students significantly underestimate the cost of university life, contributing to further debts upon graduation. The survey revealed that prospective students expect the yearly prices of groceries, household bills and travel expenses to be approximately £460 less than the actual cost of these items.

Unsurprisingly, many students are working part-time or even full-time to cover the basic cost of living. Between 1996 and 2006, the number of full-time students who also work full-time rose by a staggering 86%. The NUS report points out that when paid work exceeds 21 hours per week, there is a significant proven negative effect on attendance and grade achievement.

The NUS argue that the proposed "market system" (whereby students pay more to attend "better" universities) will reinforce "existing inequality in both opportunity and outcome." Students from wealthier backgrounds will be able to pay the fees outright, whilst poorer students will be forced to consider whether higher education will be a worthwhile "investment".

The situation for students is set to get a lot worse if the cost of tuition increases. Worryingly, if top-up fees are raised above the £3,145 cap, it is estimated that the average student will have approximately £25,000 worth of debt upon graduation. With interest rates linked to the Real Price Index (RPI), this debt will accrue at a rate of around £950 per year. The NUS warns that under the existing arrangement (whereby graduates repay 9% gross income over a £15,000 threshold), a graduate with this level of debt would "have to earn £25,550 in that year to offset this interest, before making any dent in the original loan." A report by the Higher Education Statistics Agency (HESA) in 2006 revealed that the average starting salary for graduates was £18,501.

When the Higher Education Act introduced top-up fees legislation in 2004, proponents for the scheme argued that it was not unreasonable for students to pay extra for their university educations, because they would ultimately earn more during their lifetimes than non-graduates. In addition, the proposed "market system" would address the oversubscription of popular universities, because these institutions would raise their fees to offset market demand.

However, as the NUS report indicates, "almost all" universities increased their fees to the then maximum cap of £3,000 per year. Although graduates, on average, do earn more during their lifetime than non-graduates, this difference is reducing rapidly. The NUS argue that if the top-up fees cap is raised above the £3,145 mark, then graduates are likely to find themselves with levels of debt which are not sufficiently offset by their salaries. The NUS is concerned that graduates will be unable to fully repay their student debts, due to the yearly accrual of loan interest.

The Government is in a difficult position with regards education funding. On the one hand, Labour is committed to keeping young people in education for longer. Ministers argue that this is necessary to keep Britain’s workforce ahead of other countries in terms of skills required for the changing global economy. However, funding this expansion of the education sector is difficult, not least because of the downturn in the UK economy, but also because the Treasury is, simply put, running out of money.

What remains clear is that, with rising inflation and the possibility of further top-up fees, the price of a university education is increasing. For many students from low-income backgrounds, the prospect of spending three years without full-time employment is practically unimaginable. Many potential graduates believe that the debts related to taking a degree are not worthwhile, and are deciding that university is not an affordable option.

Other students are pursuing a university education without an accurate comprehension of the true costs.

"When they leave home for the first time, many students are unaware of the costs of everyday life, and how debt can mount up" warns NUS President, Wes Streeting. "It is clear that students are sleepwalking into financial crisis."