Loans: Student Loans And Graduate Loans

Student Loans

It's estimated that two-thirds of student will have to borrow money from the Student Loans Company. For the 2006/7 academic year, undergraduates can borrow up to £4,405 a year (£6,170 in London).

Student loans may look very large, but they are also the cheapest loans available. This is because they only grow at the rate of inflation, which is currently hovering around 2% a year. If inflation takes off, don't worry, because the interest on student loans is capped at 1% above the Bank of England's base rate. This is still much lower than most other forms of debt. Therefore, don't be in a hurry to pay off your student loans quicker than you must.

Nowadays, from the April after you graduate, your repayments automatically come out of your pay packet each month. Once you start earning £15,000 a year, 9% of anything you earn above that will go towards paying off the loan.

Student Overdrafts

Student banking packages offered by high-street banks commonly allow undergraduates an interest-free overdraft up to a certain limit. This can feel like having access to 'free' money. Taking advantage of 'easy credit' is a bad habit to get into though, because even 'free' overdrafts still amount to borrowing, and the free period can end abruptly. Many start to charge interest within a year of graduation, and these rates can be sky-high. So, it's imperative to pay these down as quickly as possible, or else consider switching accounts. First of all, though, you should speak to your bank manager to try to negotiate with him about your overdraft and the interest rate that you pay.

Graduate Loans

Your bank might be willing to lend you more money after you've entered the world of work. These are commonly called graduate loans. They are often marketed as a helping hand to raise a deposit for a flat, buying work clothing and the various costs associated with beginning your career.

However, they are far more expensive than student loans (although they are usually cheaper than bog-standard personal loans), and could tie you for some time to a bank which you don't necessarily want to deal with. You might want to consider borrowing from your employer, which may lend you money at a very low rate, even interest-free.

If you're looking for further funding while trying to obtain a professional qualification, then you should explore career development loans, which are available from most high-street lenders, and offer low rates of interest.

For more on how to manage your finances as a new graduate, visit our Student Finances discussion board.

Published on November 17, 2006