IS DEBT an inextricable part of the university experience? For most students yes. Last year 837,000 students borrowed some £2.7 billion from the Student Loans Company and the banks provided billions more in credit to their undergraduate customers.
But you can limit the extent of your financial woes on graduation by taking steps before you start college to choose the best banking and insurance deals and to manage your money sensibly. Think again, if you were hoping to take advantage of the newer more lenient bankruptcy rules to evade your creditors on graduation: if you are deemed to have run up debts recklessly, you will be blacklisted for mortgages and overdrafts for 15 years.
In the weeks before you start college, banks and insurance companies will be bidding for your custom; learning to read the small print now will be a valuable life lesson, however attracted you are to free curry vouchers (on offer to student customers of Lloyds TSB) or free railcards (an incentive at both HSBC and NatWest).
Bank accounts Here begins the first lesson in reading the small print. Before choosing an account you need to know the following: the size of the interest-free overdraft; the charge for borrowing extra money above this limit, including how much you will pay if you do not seek the bank’s permission for this borrowing, the credit-card’s interest rate and its credit limit.
Credit-card rates range between 17 and 19 per cent — rather expensive . The typical credit limit is £500, but, at some banks, you may be able to negotiate a higher figure.
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A number of banks, such as Halifax and The Royal Bank of Scotland, will pay you interest at the rate of up to 2.5 per cent on any money in the account; this is a feature worth having if you will be depositing money you have saved towards your course, or your loan from the Student Loans Company. The savvy student will probably, however, opt to stash this money in a high-interest savings account where it will earn 5 per cent plus.
All banks offer a typical free overdraft of £1,000 in the first year, rising to as much as £2,000 for students in the final year of a five-year course. The highest third-year amounts come from Co-operative Bank and smile, Co-operative’s online arm, which offer £1,800. Both are ethical institutions that invest only in ethically sound businesses. But neither bank offers any account-opening incentives.
If you are taking a gap year, you still may be able to take advantage of the concessionary terms of a student bank account. Kathryn Davis, pictured, from Devon, has a place to study English at Portsmouth University. Although she is taking a year off to work in a monkey sanctuary in South Africa, she is comparing accounts now. Halifax will accept student customers who are taking a gap year, but you do not necessarily benefit from the interest-free overdraft until you start your course.
Other criteria in Kathryn’s selection of a bank include charges for exceeding your overdraft limit. She says: “Saving money is going to be high on my list of priorities and my research shows that some of the fees for slipping into the red can be huge.” At Barclays, you will be charged £25 a day for running up an unauthorised overdraft, with a maximum penalty of £75 a month — that’s a lot of groceries.
It is worth contacting the bank if you think you are in danger of going into the red. NatWest charges 17.81 per cent on unauthorised spending, but it levies no interest on overdrafts that have been agreed in advance.
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Kathryn has assessed the value of the incentives offered by most banks. She rates NatWest’s offer of a free railcard worth £100. “When I start college, I will want to travel home a lot, so it will work out cheaper for me,” she says.
Sources of funds Banks are not the only way to fund your student days. The Student Loans Company will advance up to £5,000 a year. But you will only receive the full amount if you are living in London, away from your parents. Outside London, the maximum loan is £4,095. However, some students may receive a lower payment because a quarter of each loan is subject to means-testing.
From September, the interest rate, which is linked to inflation, will be 2.6 per cent. Compared with some of the cheapest loans on the market, which charge from 6 per cent interest, a student loan is the best credit deal around.
There is more good news for freshers. A change to the rules by the Student Loans company means that you will not be obliged to start repaying your loan until your salary exceeds £15,000. The limit for recent graduates is £10,000.
Banks and student loans aside, there are other opportunities for students to raise extra cash. A new favourite website for the indigent is is www.studentmoney.org which lists scholarships, bursaries, companies offering sponsorship and other places where you can go cap in hand.
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E-bay is another popular place to raise some spending money: Kathryn is selling clothes and CDs on the site to fund her gap-year travel.
A MORE pressing decision for Kathryn is which travel policy to choose from the dozen insurers that provide gap-year insurance which now include Argos, the retailer. Travel cover is one area where opting for the cheapest deal may not save you money in the long run: some cheap policies will not pay out if you lose your rucksack.
You must expect to pay £150 or more for baggage cover. The minimum medical cover on offer is £1 million, which you may consider entirely adequate. Kathryn is keen to try some adrenalin-charged activities when she is travelling. “I love heights, so would try bungee-jumping and parachuting,” she says. Some policies include cover for bungee-jumping, as shown above, but travellers who want to stretch the limits of their endurance by taking part in activities such as diving with sharks (in a cage) or rock climbing can expect to pay additional premiums.
Kathryn also wants to return home during her travels. An additional premium of £25.72 on an InsureandGo policy will cover four visits home over 12 months.