Conal Gregory: How to avoid building up a huge debt pile during university years
Do not delay in getting student finance sorted out. Insurance will be needed immediately you arrive and arranging a current account makes sense now, rather than join a long queue later to discuss your personal needs.
Higher education is a good investment for life but if debt worries are not to proliferate, plan a budget. Loans should only be taken out if necessary and fears about paying them off should not be exaggerated.
The official loan arrangement depends on personal circumstances but for the 2016/17 year can be up to £10,702 with the money paid into a designated account at the beginning of term. No repayment is expected until a graduate earns over £21,000pa. There is additional help – Special Support Grants – for students who are single parents or with low income or a disability.
Check if scholarships are available for your course. Generous ones related to future careers in teaching and particular industries are on offer.
Most universities currently charge annual tuition fees of £9,000 but are likely to raise them in line with 2.8 per cent inflation if Government expectations, known as the Teaching Excellence Framework, are met. Already Bradford, Durham and York St John have announced such plans for 2017 which would mean fees increasing to £9,250.
The Royal Bank of Scotland issues a student living index based on such factors as accommodation and student incomes. It reveals that Edinburgh is the most expensive student city in the UK with average weekly rent of £112 and termly earnings of £995.
Avoid credit cards which are too tempting to use and have penal rates if not paid off promptly. Interest can reach 34.9 per cent APR (Capital One Classic). Instead budget carefully and if there is the need to purchase an expensive item, perhaps required for a course, discuss ways to finance it with the student specialist at your bank branch. Additionally, use free advice consultants, available through Citizens Advice and college counselling.
Starting each week with a specific cash sum is a good discipline and better than using contactless plastic where they may be an unpleasant surprise later. As an exception, parents might like to consider pre-loading a card offered by some supermarkets which can be redeemed for groceries.
If sharing, pay utility charges on a monthly basis by direct debit to help with budgeting.
Theft is rife at university and notably in the first weeks when security is lax. Many insurance policies allow for contents outside the home but check on the restrictions, notably access to accommodation and the single article limit. In each vacation, belongings that are not brought home need to be in a secure area that is properly locked. It may be better to purchase a separate student insurance policy but look at both the conditions and track record of the insurer. One of the leading ones has an appalling reputation for wriggling out of making payments, insisting on receipts as proof of purchase.
A third alternative for insurance is to use a policy offered by the college. It can be good value but the limits can be low.
If there are any high value articles, like jewellery or a musical instrument, give the insurer full details and ensure full replacement value as well as taking photographs and recording any distinguishing marks.
The choice of current account provider is vital. Students should not choose simply on the basis of an upfront perk, many of which are just gimmicks that add little to the value of an account. Instead look at the overall account deal and particularly the overdraft facilities. The levels quoted below are not guaranteed and have to be applied for.
“Using an overdraft facility is an effortless temptation and, while they’re designed to help students cover expenses, they should never be abused as the debt will need to be paid back,” warns Rachel Springall from Moneyfacts, which analyses the market. “There is a huge danger of racking up a large amount of debt and not being able to pay it back when the time comes.”
Halifax and HSBC offer the best interest-free overdraft facility with no account fee. This is a generous £3,000, subject to credit checking. Other accounts spread the loan available over the years of study which can be a sensible option for some:
Bank of Scotland £1,500 in first three years, then £2,000 per year (tiered first year)
Barclays £1,500 in first year, then £3,000 per year (tiered first two years)
Co-op £1,400 in first year, followed by £1,700, £2000
Lloyds £1,500 in first three years, then £2,000 for two years (tiered first year)
Nationwide £1,000, £2,000, £3,000 in each respective year
NatWest/Royal Bank of Scotland £2,000 each year (tiered first year)
Santander £1,500 in first three years, then £1,800, £2,000 (must pay in £500/term in first year)
TSB £1,500 each year (tiered in first year).
If the free overdraft is not likely to be sufficient, consider the terms of an authorised one.
Do not go into the red without informing your bank. Not only will penal charges start but your credit rating may be affected. Halifax, for instance, charges 24.2 per cent EAR plus £28 monthly fee whilst the Co-op rate is 18.9 per cent EAR.
Lucrative incentives are on offer to entice students. A National Express coach card, giving one-third off fares, is available through NatWest/RBS and a railcard from Spanish-owned Santander, both running for four years.
These will reduce the cost of visits home as well as mini-breaks.
HSBC gives a £60 Amazon gift card, one year Amazon Prime benefits and 20 per cent discount on coach travel.
Lloyds gives a three-year NUS card. Cashback when using selected retailers is offered by Bank of Scotland, Barclays and Lloyds. Barclays also gives online ‘life skill’ modules to become more financially savvy and help with CV writing.
Nationwide’s new FlexStudent gives the chance to win one of five £15,000 prizes plus cashback.
Another key factor is a provider’s digital banking capability. Living away from home means being in charge of daily expenses and so checking payments using mobiles and tablets will be practical. Sign up for free mobile text alerts for balances, limit and overseas transaction alerts.
Few students need to use cheques but a branch close to campus can still be helpful for seeing a specialist adviser.
Those who have recently graduated should review their current banking arrangement and decide whether switching would be a better option.
Often the interest-free planned overdraft will be continued for a year after graduation, such as with Halifax and Lloyds.