I was talking to some friends last week. They graduated a few years ago. They have common sense and are very logical. This is the case for most of their friends too, yet lots of them feel very confused and ignorant about how to manage their finances, how things like the fiscal year affects them, why they should save and so on.
This is something they were not taught in secondary/high school and unless you tell me otherwise, the syllabus has not changed. Thus many young adults go to Uni and have no idea how to manage their money, limit how much debt they accumulate & as a result, get very stressed. So I’m going to try and answer some questions in separate posts.
Hopefully this will tell you a lot of what you need to know about student finance
The notion that knowledge is priceless is a romantic one. These days, if you want to study beyond the age of 18, knowledge starts to become decidedly expensive.
The average student entering higher education now, will leave university with debts of more than £10,000 made up from a combination of student loans, credit cards and overdrafts – and this is forecast to get considerably worse. Barclays predicts students graduating in 2010 will be facing £30,000 of debt.
Although figures show that graduates can expect higher than average earnings, well-paid jobs may not materialise for a number of years after leaving university. And, for many, this premium in earnings may never be enough to clear their personal debt pile.
So short of having wealthy parents, the best thing is to learn about (and prepare yourself for) each cost involved.
As the name suggests, tuition fees pay for the actual course you want to take. They were introduced in 1998/1999. Previously, the Government covered the entire cost. The change was made to help fund a growing appetite for higher education and justified by claims that during the course of their working lives, a graduate could earn £400,000 more than a non-graduate.
Not everyone has to pay tuition fees. If your parents’ combined earnings are under a certain threshold they will not have to pay a penny. From the threshold upward, the contributions operate on a sliding scale.
But the maximum any family has to pay – regardless of their earnings –amounts to around a quarter of the entire cost of the course each year which is estimated to be around £4,000. The Government still picks up the bill for the remainder.
As soon as you are accepted on to a course – even on a conditional basis – you should apply to your Local Education Authority (LEA) to find out what sort of financial support you can expect. Even if you think there is little chance of paying less than the maximum fees, it is always worth applying.
Most students will need to fund their day-to-day living by taking out one or more student loans. These are unsecured loans with an especially low interest rate that reflects the rate of inflation. This means, in real terms, you only pay back the exact amount you borrowed.
You should contact your LEA about a loan at the same time you apply for support towards tuition fees. Your LEA will assess the amount of loan you are entitled to and will invite you to say how much of it you want to apply for. (If you are studying in London you will be eligible for more.) You must then tell the Student Loans Company (SLC) of this amount and it will pay the money into your account on the first day of term.
You can apply for one loan for each year of your course and you do not have to start making repayments until the April after you graduate and then only if you are earning above a certain threshold, albeit low. The amount you pay back each month will depend on how much you earn. In the unlikely event that you never earn over the threshold, the loan will be wiped when you turn 65.
Most of the big banks will offer an interest-free overdraft facility on their student accounts in the hope that you will stay loyal to them when you start earning big bucks in the future.
The amount you get on an overdraft will depend on the bank and will apply to all its student applicants. A good benchmark is around £2,000 interest-free.
Although the overdraft will not cost you anything if you stay within your limit, go beyond it, you’ll be charged a hefty interest rate on the difference – and usually a one-off unauthorised overdraft fee as well.
As for repaying the overdraft, there is no specific time limit. But after leaving university, the interest-free perk will simply evaporate and you will be charged at the same high rates that apply to overdrafts on standard current accounts. It is worth noting that some banks provide a grace period after graduation before the higher rate kicks in.
These rarely carry privileged terms for students. If you take a credit card from the bank you will pay exactly the same high interest rates as everyone else. The only difference as a student is that your credit limit will be lower.
If there is any way you can get through university without a credit card, do it. The typical £500 that you will be able to access on a credit card will hardly determine whether or not you can stay at college – more likely you will end up sitting on the balance while paying high interest rates for three years having forgotten what you spent it on.