The student finance survival guide
Debt is an inevitable part of university life for most undergraduates, but there are various ways they can master their finances and help keep those borrowings under control.
Indeed, managing on a tight budget is one of the crucial life skills that, hopefully, they'll get to grips with during their time at university.
"When students come to university it's usually the first time they've lived away from home," says Alex Bairstow, senior pre-enrolment finance officer at Sheffield Hallam University. "It can be a very exciting time - as well as learning more about their degree subject, they'll also learn some important life skills, including money management."
So what can they do to make their cash go further and minimise the debt millstone?
Setting and managing a budget is the first important lesson every student needs to learn, according to Bairstow. "We get lots of very rich students in September but, by Christmas, many of them are struggling," he says. "Having a budget helps avoid this."
To draw up a budget, add up all the money coming in, for instance loans, grants, bursaries and so on, and then deduct all the important outgoings.
These include accommodation (most providers of university accommodation deduct this at the beginning of term when cash flow is guaranteed), travel costs, anything necessary for the course, for example books or equipment, and any other fixed costs such as insurance and a mobile phone.
What's left is the money available for everything else, including food, clothes and going out.
Jatin Patel, director of current accounts at Lloyds TSB, recommends dividing this figure to get a weekly or monthly budget. "Students receive their finance each term, but budgeting over such a long period makes it much harder to keep track of the money. Having a weekly budget gives much more control," he says.
But while a weekly or monthly budget can help avoid the boom/bust scenario each term, there's no guarantee students will manage to stick to it.
Unexpected costs can crop up, or it may be the budget is just too skimpy. If that happens, look at where expenditure can be cut back.
The way students handle money can also make a difference. Oliver Brann, editor of studentbeans.com, recommends using cash rather than plastic wherever possible. "On a night out, take as much cash as you think you'll need and leave your debit card at home. That way you won't be tempted to overspend," he explains.
STUDENT BANK ACCOUNTS
Picking the right bank account is key to managing your finances. In freshers' week, all the banks will be touting for student business, with the promise of all manner of freebies.
This year, Barclays is offering £75 cashback on certain Phones4u contracts and discounts on insurance and travel books; HSBC has discounts on travel books and two years' free travel insurance; and Lloyds TSB is offering a free NUS Extra Card, a year's free membership of the Youth Hostel Association and 35 free music downloads.
But Sylvia Waycot, spokesperson for Moneyfacts, says: "Don't be tempted by the freebies alone. Look beyond these to overdraft facilities and whether it will be convenient, in terms of branches or internet banking."
Overdraft facilities do vary hugely. For instance, according to Moneyfacts, the Yorkshire Bank doesn't offer an interest-free overdraft with its student account, while Halifax and HSBC are the most generous, offering interest-free overdrafts of up to £3,000 per academic year.
But Waycot adds: "Be aware that some of the higher overdraft limits are quoted as 'up to'. You'll be credit-scored and if you don't match the bank's criteria you may be offered a lower limit. Check first."
As well as picking an account with a generous overdraft facility, it's important to be prepared if spending does push you over the limit. Being proactive can save you from hefty unauthorised overdraft charges.
"At Lloyds TSB, we'll send you a text message if your account is about to go over its authorised overdraft limit, and you'll have a day to put it right, perhaps by transferring money or borrowing from your parents," Patel says.
Insurance is another essential. "Students take possessions worth on average £4,000 to university every year, with a laptop usually their most valuable item," says Vicki O'Connell, a spokesperson for Endsleigh Insurance. "But if your laptop's stolen, lost or damaged it can seriously upset your budget and your studies."
Insurance is automatically included in the charges of many halls of residence, but this only covers theft from the halls and not accidental damage, or loss or theft while out and about.
Top-ups are available to address this. For instance, Endsleigh offers a laptop top-up for around £35 a year with a £50 excess. This provides a replacement new laptop within 24 hours. Mobile phone cover is also available, at around £45 a year.
Once away from the shelter of halls, more comprehensive insurance may be necessary. Comparison sites can help you find the cheapest deal; for instance, moneysupermarket.com has a section specifically for student contents insurance.
As an example of premiums, Endsleigh offers a policy for those in shared accommodation covering £3,000 of contents plus a laptop and mobile phone, for around £10 a month.
It's also possible to include a student's possessions on the parent's household insurance, but O'Connell warns against doing so. "It may mean a smaller premium initially, but students are 60% more likely than homeowners to make a claim. Parents may then find themselves paying an excess,
typically between £100 and £150, and see their no claims discount reduced. It could easily end up costing more than taking out insurance in the student's name."
Accommodation is likely to be the biggest expenditure for students. Students at Reading University, for example, can expect to pay up to £184 a week for accommodation.
There are ways to reduce this. Sharing a room is one option. At Reading, a single room for the academic year, including catering during term time, costs £4,739. Share it and the cost falls to £3,597 each. Even sharing a bathroom will drop the charge to £4,301.
Living in a shared house off-campus is another option, with rent often cheaper than halls. But, before heading off-campus it's worth weighing up the costs, as Bairstow warns it can be a false economy. "Factor in the cost of all the bills and travel as well as the rent. It might be cheaper to stay in halls," he says.
There are ways to reduce the cost of living off-campus too. Shopping around for cheaper deals on gas and electricity can mean significant savings for very little effort. "And, with comparison sites, switching has never been easier," says Oliver Brann.
One of the easiest ways to haemorrhage cash is by relying on convenience food. Bairstow says: "Spending £2 on a latte doesn't sound like much, but multiply it over a term and you could spend as much as £130. A flask will save a fortune."
The figures get even worse for meals. Spending £5 in the canteen every lunchtime amounts to more than £300 over a term - more than enough to buy the ingredients for the most exotic sandwiches.
But the worst potential pitfall is expensive debt.
Although borrowing is hard to avoid as a student, it's important to do it smartly. Waycot explains: "Borrowing on a credit card can seem tempting, and limits for students do tend to be small. But if they can't repay the debt, then even a few hundred pounds can soon escalate as interest charges mount up."
Bairstow advises anyone struggling to see the student finance team. "They'll make sure you're getting everything you're entitled to, and help you work out a budget. They might also be able to give you some help from the Access to Learning fund. University life doesn't have to be financially tough."
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Does exactly what it says on the tin: covers the contents of your home for theft and damage and also may insure certain possessions (jewellery, cycles) outside of the home. Things to watch for include the excess and also the maximum payout on individual items. Another grey area is kitchen fittings, as some contents policies say these are not contents but part of the fabric of the property and covered by buildings insurance and some buildings policies don’t cover them because they regard them as contents.
Issued by a bank as part of a current account and, in a nutshell, serves as electronic cash. Unlike a credit or charge card, where you get an interest-free period before you have to settle the bill, the funds spent on a debit card are withdrawn immediately from your current account. Unless you’ve arranged an overdraft, if you don’t have the cash in the account, you can’t spend it.