FOOL SCHOOL
Student & Graduate Loans

July 26, 2002

Over a third of 18-year-olds now enter higher education each year. Twenty years ago only a tenth did but they enjoyed full maintenance student grants to fund them through their student days. Nowadays, with tuition fees of £1,050 charged annually and loans, rather than grants, paying for living expenses, many graduates enter the world of work owing various creditors several, if not tens of, thousands of pounds.

Student Loans

It's estimated that two-thirds of undergraduates will have to borrow money from the Student Loans Company. For the 2002/3 academic year, undergraduates can borrow up to £3,905 a year or £4,815 if in London. However, a quarter of this amount is means-tested and slightly lower limits apply to those in their final year.

Student loans may look very large but they are also the cheapest loans available by far. They only grow at the rate of inflation. This is currently around 2% per annum. If inflation takes off don't worry, because the interest on student loans is capped at 1% above base rates. This is still low compared to most other forms of debt.

Don't be in a hurry to pay off your student loans quicker than you need to. Nowadays, from the April after you graduate your repayments automatically come out of your pay packet each month at 9% of your income, as long as you earn £10,000 a year.

Student Overdrafts

Student banking packages offered by the main high street banks commonly allow undergraduates an interest-free overdraft up to a certain limit. This can feel like having access to free money. That's a bad habit to get into though, because such 'free' overdrafts still amount to borrowing and the free period can end abruptly.

Many start to charge interest within a year of graduation. These rates can be punitive. 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 and try and negotiate with him about your overdraft and its interest rate.

Graduate Loans

Your bank might be willing to lend you more money when you start your first job. These are commonly called graduate loans. They are marketed as helping you to find a deposit on a flat, buying suits for work and general costs associated with starting work.

However, they are far more expensive than student loans (although they are usually cheaper than standard personal loans) and could tie you in with a bank you don't necessarily want to deal with for some time. You might to consider borrowing money instead from your employer, who may lend you money at a very low rate. If you're looking for further funding whilst you're trying to obtain a professional qualification then you should explore career development loans, which are available from most High Street lenders, and offer cheap rates of interest.

For more on how to manage your finances as a new graduate read this article or get this TMF book. The NAMSS site is also a useful source of information as is this discussion board.

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