Student loans and the price of an education

The average student entering higher education will now leave university with debts of around £10,000. This is made up from a combination of student loans, credit cards and overdrafts. This figure however is set to sky rocket as Barclays predicts students graduating in 2010 will be facing £30,000 of debt.

Although some figures show that graduates can expect higher than average earnings, students may not actually be in well-paid jobs for a number of years after graduating leaving. Unfortunately for some, this premium in earnings may never even be enough to clear their accumulated personal debt.

The best way to avoid the struggle is to learn about and prepare yourself for each cost involved over the period of our course including the time it may take you to find a job afterwards.

Firstly, tuition fees - these pay for the actual course you want to take. Before 1999 the Government covered the entire cost. However now, a growing appetite for higher education forced the Government to change the system. This was also justified by claims that during the course of their working lives, a graduate could earn £400,000 more than a non-graduate. 

However, not everyone has to pay tuition fees. If your parents' combined earnings are under a certain threshold they will not have to pay. From the threshold upward, the contributions operate on a sliding scale.

Although, regardless of their earnings, the maximum any family has to pay amounts to around a quarter of the entire cost of the course each year. This is estimated to be around £4,000 and the Government will still pick up the bill for the remaining amount.

As soon as you are accepted into a course you should apply to your Local Education Authority (LEA) to find out what sort of financial help you can obtain.

Thinking of taking out a loan to fund your course? Most students will need to take out one or more student loans to cover their day-to-day living. These are unsecured loans with an especially low interest rate that reflects the rate of inflation meaning you only pay back the exact amount you borrowed.

If you are going to take out a loan you should contact your LEA at the same time you apply for support towards tuition fees. Your LEA will assess the amount of loan you are entitled to and invite you to request how much you want to apply for. You must then tell the Student Loans Company (SLC) of the amount agreed and it will pay the money into your account on the first day of term. Note also that you are eligible for more funds if you are studying in London.

You can apply for one loan for each year of your course and you do not have to start making repayments until the April (end of tax year) after you graduate. From then on, you will only start paying back the loan if you are earning above a certain threshold.

Then the amount you pay back each month will depend on how much you are earning. In the unlikely event that you never earn over the threshold, the loan will be cleared when you turn 65.

Alternatively, 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 in the future.

The amount you get on an overdraft will depend on the bank and will apply to all its student applicants but the usual amount is around £2,000 and it is interest-free.

Although the overdraft will not cost you anything if you stay within your limit, if you should go beyond it, you’ll be charged a hefty interest rate on the difference. You may also be hit with a one-off unauthorised overdraft fee as well.

There is no specific time limit for repaying the overdraft. But after leaving university, the interest-free perk will no longer be available 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 will kick in.

Another option is of course the old fashioned credit card. However, these rarely carry privileged terms for students. If you take a credit card from a bank you will have to pay exactly the same high interest rates as everyone else. The only difference will be as a student, your credit limit will be lower. Most will find, with credit cards, they will sit on their maxed out balance and pay interest for three years forgetting what the spent the money on in the first place.

Although there are many money lending options for student, seventy per cent of university students’ still finds money a problem and half will have part-time jobs as well as loans. Most students admit they are worried about debt but believe it is unavoidable. Know and research your options carefully and avoid getting into any unnecessary debt, such as credit cards until you have some sort of income.