FOOL'S EYE VIEW
A Simple Guide To Student Finance

By Cliff D'Arcy
August 26, 2003

Before taking my A-levels (way back in the mid-Eighties), I'd already decided not to go to university. Instead, I'd decided to continue my family's long history of military service by entering the officer-training course at the Royal Military Academy, Sandhurst.

As it happens, my housemaster talked me out of this by explaining that I would have a fantastic time at college, plus my father (a serving officer) warned me that I didn't have the necessary self-discipline to make it in the Army! Hence, I became the first person in my family to go to Uni, taking myself off to London to study Maths, which I never regretted for an instant (being forced to wear a uniform to work? Yuk!)

When Margaret Thatcher became prime minister in 1979, around 13% of school-leavers went on into further education. Since then, the proportion has tripled to 40%, which means that around 300,000 young people (plus mature students) are expected to take up college places this year.

These days, going to college is far more expensive than when I was living on non-repayable grants in the late Eighties and early Nineties. The replacement of student grants by student loans and the introduction of tuition fees have placed a huge financial burden on students and their parents, with the National Union of Students estimating the average debt on graduation at £17,000!

What's more, 1 in 5 students drop out of their studies, with financial problems cited as being the most common reason for doing so. Hence, if you're going to succeed in college and beyond, you need to acquire a few smart money habits from day one.

Before you go

You've got your A-level results, you've found a place at college and you're all set for the time of your life. Take some time out to put some effort into the following:

Find a good bank account: Student accounts are usually far more generous than ordinary current accounts, so go for one of these. Although it's handy to have a branch on or near your campus, thanks to telephone and internet banking, it's no longer a necessity (so long as there's at least one local cashpoint you can use).

Unless you're already a money guru (or your parents' chauffeur will be driving you to college in their Bentley), your account's not going to be in credit very often, or for very long! Hence, look for an account with no or low interest on overdrafts (0% on the first £1,000 is fairly common for year one), plus free banking. Check out the comparison tables here and here, and watch out for the gimmicks and inducements for new customers and, instead, focus on what counts: the interest rates and borrowing limits.

By the way, remember that your overdraft facility has a limit, not a target, so don't try to set a world record for reaching it as fast as you can. Also, don't exceed it without permission, or you'll be hit by penalty charges and interest that will make you both gutted and broke, so always talk to your bank first!

Apply for a student loan: unless you or your parents are fabulously wealthy, you should apply for the maximum student loan that you can claim, because they're one of the cheapest ways to borrow money to pay for living costs and tuition fees (up to £1,125 for the 2003/04 academic year). Student loans are cheaper than any other form of borrowing, including mortgages, bank loans and credit cards (but not 'soft loans' from parents). That's because the government links the interest rate on student loans to inflation, which will be about 3% this year.

Loans are highest for students living away from home: up to £4,930 in London and £4,000 elsewhere, compared to a maximum of £3,165 for those electing to stay in the nest (note that loan amounts are lower in the final year, because it's shorter). One-quarter of your loan is assessed on your family income, so you may not qualify for this extra amount. Your loan is paid in three instalments at the start of each term, usually direct into your bank account (sometimes your first payment is made by cheque).

You only start repaying your student loan after leaving college and once your income exceeds £10,000 a year. You pay 9% of your income over £10,000, so if you go on to earn £20,000 a year, you'll repay £900 of your loan that year (£75 a month).

For more information on student loans and additional financial help for students, including other grants and benefits, read this (long but detailed) government download.

Credit cards: please, please, please don't be tempted! Credit cards, aka 'magic money', may be a safe and convenient way to pay for purchases, but the interest rates are mind-bogglingly high if you can't pay off your bill in full every month without fail. Read Weapons Of Money Destruction! so you learn from others' mistakes.

Insurance: theft is commonplace in college accommodation and student digs, so make sure your belongings are protected by contents insurance. Either arrange your own cover, or get your parents to extend their policy to cover your possessions while you're away. Just make sure you shop around to find the best deal - don't just take the first policy you're offered. Endsleigh Insurance is very popular with students, with premiums beginning at just £18 a year.

Once you're there

Other than your final exams, one of the biggest tests in student life is learning how to budget. If you fail to get used to controlling your spending and boosting your earnings, you're going to be broke for your entire life! Get into the habit of working out how much you have and how much you can spend. Live on cash, not credit: try drawing out a fixed weekly amount on your cashcard and making it last the whole week.

Keep a record of your spending each term by adding up all your income and subtracting your outgoings (see the examples below). Unless you're one of the lucky ones, you'll find that you're short to the tune of between £4,000 and £5,000 a year, which often means working part-time (two out of five students do) or during holidays to make ends meet.

Income: student loan, parental contribution, savings, money from holiday jobs and part-time work during term-time.

Expenses: tuition fees, rent, fuel bills, travel expenses, books and course materials, insurance premiums (such as for car, bicycle and home contents cover), mobile and other phone calls, food, leisure and entertainment, clothes shopping and laundry bills - the list is endless!

(While we're on the subject of spending, check out this article on using the Internet for everyday savings on goods and services, including books, CDs and DVDs: ten wonderful websites. To save money on mobile phone charges, both contract and pay-as-you-go, visit this site.)

Saving: if you are financially disciplined or already have savings, make the most of being in credit by earning as much interest as you can in a good deposit account. Why not try cash mini-ISAs (Individual Savings Accounts), the tax-free deposit accounts available to anyone over 16, which allow you to deposit up to £3,000 a year and not pay tax on your interest?

There's a huge amount of valuable information for students on these and other websites, so make use of them:

National Union of Students
Department for Education and Skills
Student Loans Company
MSN Money

Finally, if you want to help out your parents, tell them to read this article on making an extra £2,500 a year, which will go a long way to supporting you through your studies. Who knows, maybe some of this money will find its way into your pocket as a reward from grateful parents!

More: Visit our Online Banking, Insurance, Savings and Cash mini-ISA Centres | Student Finances discussion board.