How to cut the cost of university
Within the next few years, the average student debt is expected to hit the £20,000 mark, according to student guide and website push.co.uk, with new students expected to owe £4,000 more than the current average of £17,500.
Most students now accept debt as an inevitable part of university life that they would rather not dwell on. But sticking your fingers in your ears and singing “I’m not listening” won’t magic the financial problems away. Instead, why not follow our guide on how to slash the amount you – or your children – will need to borrow?
Depending on your circumstances, you’ll receive an annual loan (2009/2010 rates) of £3,225 to cover tuition fees, plus a maintenance loan of up to £6,928 towards living costs – and, in some cases, a maintenance grant of up to £2,906, which doesn’t have to be paid back.
All universities charging the full whack of tuition fees also have to pay a bursary of at least £319 a year, although they frequently give more. For more details on how much you are entitled to, and how to apply, see the Directgov website.
Even if you receive the maximum amount of financial support, you still need to manage your money carefully to make sure you’re not reduced to living on a diet of baked beans come the third term. First off, make sure you’ve chosen an appropriate current account.
“The key is to shop around, as the criteria for a good account depends on the student – some will want an overdraft, others won’t,” says Tom Pearson, financial support adviser at City University in London.
Most student accounts’ in-credit interest rates don’t hit the 1% mark, or are completely non-existent. Instead, most banks focus on interest-free overdrafts, as these tend to matter more to undergraduates. Unless you are absolutely confident that you will never need to dip into the red, it’s definitely worth choosing an account with an interest-free overdraft.
Overdrafts range from £1,000 to £3,000. Some accounts increase the limit each year of study, while others give students the whole limit in the first year. However, you may not be eligible for the biggest overdraft if your credit rating isn’t so good.
Music vouchers, or travel and laptop discounts, are some of the added incentives banks wave under freebie-mad student noses, with NatWest’s free five-year railcard the pick of the bunch. However, although these can seem great extras, don’t let them turn your head.
“A £20 music voucher plus a £1,000 overdraft is essentially a £1,020 overdraft, and the difference is minimal compared with an account with a higher overdraft,” points out Johnny Rich, editor of push.co.uk, the independent student website.
Likewise, ignore all the credit card applications that will drop through your letterbox after a particularly expensive couple of weeks; they will only add to your debt.
Beth Budsworth, managing director of the Debt Advisor, which offers advice on anything debt-related, recommends drawing up a budget: “Work out exactly what essential costs you have each month – rent, food, bills, and so on – and divide what you have left into weekly amounts. Take that amount out of the bank at the start of the week and stick to it, rather than making constant trips to the cash machine.”
A budget will also indicate if you need to look for supplementary income from elsewhere, be it from your parents or through a part-time job. Three out of four students take on extra work, according to the NUS student experience report, and 46% of those do so to fund their basic living costs.
Most universities accept that their students often need to supplement their income with some extra work, although some, such as Oxford and Cambridge, place restrictions on how many hours you can work a week – usually between 16 and 20.
Living in a student hall that employs a cleaner to empty your bins every other day isn’t quite the same as renting privately. If you live in rented accommodation, in addition to budgeting for food, course books and socialising, you will also have to think about utility bills, the TV licence and the phone bill. These extra costs can come as a bit of a shock, and most respondents in the NUS survey underestimated the amount that they would spend.
Although sharing a rented flat with people you know should in theory reduce the stress levels, even the best of friends can fall out when living together. To minimise the inevitable arguments, decide whose name goes on which bill, and establish in advance such things as how often you will switch on the heating and if you are sharing food costs.
It might also be worthwhile asking for separate tenancy agreements, so that if a housemate moves out, you won’t be stuck covering their bills. The downside of this sort of agreement, however, is that the landlord can move in someone without you having a chance to veto the new tenant. Before you sign anything, check with your landlord that they are happy with this kind of arrangement – while some welcome it, others don’t.
“Ask the university accommodation office to look at your rental agreements to see if they are fair,” advises Rich.
In many cases, the university will have a standard agreement that landlords have to sign if they want to be included in the accommodation office’s lists. This agreement will show that the landlord has met the university’s requirements on things such as providing a carbon monoxide certificate and regular boiler check.
“Also, ask for an inventory, so the landlord can’t accuse you of stealing or damaging their 18th-century armoire,” recommends Rich.
The advent of tenancy deposit schemes, where landlords have to pay tenants’ deposits into one of three government-backed schemes, has given tenants some protection in this regard, ensuring that their landlord can’t keep hold of the deposit without cause.
However, although they are legally obliged to, not all landlords have signed up to the scheme. If this is the case with your landlord, put the deposit instead into an account with your name on it, as well as the landlord’s, so that they can’t just take it – or vice versa.
Also, don’t forget that students are exempt from council tax, and if a working person is living with a student, they get a 25% discount.
If you take your own laptop, iPod or pricey mobile phone to university with you, it’s essential to insure these items – especially as student homes are prime targets for thieves. Specialist student insurer Endsleigh has lots of campus-based offices and offers tailored policies, ranging from cover for just one item, such as a bike, to cover for the whole gadget caboodle.
Don’t be tempted to save money by watching television without a licence. If you’re caught, you could face criminal prosecution and a fine of up to £1,000 – compared with the £142.50 it costs for a year’s licence. Remember, if you’re only watching or downloading programmes that have already been broadcast using online catch-up TV services such as BBC’s iPlayer, you won’t need a licence, but if you’re watching or recording live broadcasts via the iPlayer, you will need one.
The graduate job market has cut its intake of new graduates by 28%, according to research from highfliers.co.uk, while applications for new posts have increased, with an average 45 applications for each graduate job. On a more positive note, however, the Higher Education Statistics Agency has revealed that just 5.6% of graduates in 2007 were still unemployed six months later, and only 2% three years later.
Take advantage of your university careers service (most careers offices will still help former students up to three years after graduation). It can help you fine-tune your CV and give advice on possible work-experience opportunities that could bolster your job application credentials. Register with graduatetalentpool.direct.gov.uk to look for business internships.
Further study won’t appeal to everyone after 17-plus years in formal education, but for others it will be essential in order to break into a certain field of work or to climb the academic career ladder.
If you’re taking another bachelors degree, you won’t get any funding. But some postgraduate courses automatically come with funding attached – these are known as ‘studentships’, and most commonly cover science subjects and research rather than taught courses.
If your course doesn’t come with funding, use websites such as prospects.ac.uk and scholarship-search.org.uk to look for postgraduate awards. Alternatively, go to your local library and browse through The Educational Grants Directory, The Charities Register, The Grants Register or The Directory of Grant Making Trusts. Learned societies, such as The Royal Academy, the British Academy or the Royal Society, might also be able to offer financial help.
Taking a gap year is another – and, to some, more appealing – option. To find out how to fund your time out, head for The Directory of Grant Making Trusts for a list of all the trusts you could apply to, or look online at grantsonline.org.uk.
“The credit crunch means trusts have less money than in the past, but on the upside, fewer people are applying right now,” says Richard Oliver, chief executive officer of yearoutgroup.org. He reckons that each individual could be eligible for between 10 and 20 different trusts.
Alongside bar or shop work, you could also give your travel fund a boost with a fundraising or sponsored event. Ideasfundraising.co.uk has some great suggestions, ranging from how to run your own raffle to organising a charity concert.
However, if you do go straight into full-time work after university, and you are earning above £15,000, you will have to start paying back your student loan, although the amount will be minimal – just 9% of what you earn over £15,000. “It’s a very small amount each week – the equivalent of a mobile phone bill,” says Johnny Rich.
As of next year, students will be able to take repayment holidays of up to five years. But even though interest rates aren’t growing at the moment, it’s worth making the repayments, if you can.
“The interest rate is based on the retail prices index and this is currently in minus figures,” warns Tom Pearson. “As student loans can’t have a minus interest rate, it’s set at 0%. But this is variable, and when the economy improves, it’ll go up – in recent years, the rate has been 4.8%.”
Finally, while graduates won’t benefit from the same interest-free overdrafts as students, some student accounts extend their terms for a short while after university. “Lots of accounts have ‘grace’ periods of three to six months, instead of snapping straight back immediately. You should use this time to look for a better deal,” advises Pearson.
There are graduate accounts that still offer free overdraft facilities, so switching to one of these could be key.
Graduate university debt-free
“I actually managed to come back from university with £1,000 credit in my student account. I’ve never used my overdraft and I refuse to touch a credit card,” says Kelly Major, a 21-year-old geography graduate from the University of Southampton.
“Because I come from a low-income family, I received three cheques a year for £1,600 to cover all my accommodation and living costs. But because I was from Jersey, I was classed as an international student and had to pay tuition fees of around £6,000 a year, which cancelled out the extra money.
“So I put myself on a pretty strict budget of £42 a week, which included food. I wrote absolutely everything down and kept all my receipts – I’ve still got them all in an envelope in the loft. I bought produce at the local market instead of the supermarket, and I cooked fresh. Even though I was sometimes tempted to buy a microwave meal, I knew they cost much more, so I never succumbed. Although I went out, I’m not a huge drinker, so I saved quite a bit on this as well.
“During my first year, I took an evening job working for fundraisers, picking up the phones and doing data entry. Then, in the summer holidays, I worked the whole time to get extra money.
“And when I had good weeks where I spent less, I would use the extra money for treats such as days out and going to gigs.”
How can parents help?
Parents currently contribute 61% (£69.51) of their children’s weekly term-time income, according to NatWest’s Student Living Index. But how do you strike the right balance between leaving your children financially adrift and giving them so much help that they never learn to manage their own finances?
* Let your child know that you are always willing to help if they get into debt – be it with financial assistance or lending a friendly ear. Even if you can’t dig them out of their debt hole yourself, being understanding means your child is more likely to approach you in future and this could prevent the situation getting worse.
* Be clear from the start exactly how much money you are able or willing to give to your children. If you say “no”, then waver and say “yes”, they will know that they can twist your arm on other occasions.
* Remember that sometimes the only way your child will learn is the hard way: once you’ve shown them how to budget and warned against the perils of unauthorised overdraft fees, it’s down to your children to keep themselves out of the red.
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.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
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.