Your Money: The first student exam starts now

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The Independent Online

Year after year, the publication of A-level results is accompanied by two news stories: the exams are getting easier and student debt is escalating.

While the first is a matter for conjecture, the second is all too true. So students, and their parents, need to do some financial planning before the new university term starts in the autumn.

Grants are a thing of the past and student loans are inevitable, along with a substantial overdraft. The average student receiving his or her A-level results last week will graduate in 2006 with £17,561 in debts, according to research from Barclays. Still more alarming, those graduating in 2010 will have to contend with almost double that amount of debt - £33,708.

Part of the problem is that, for many young adults, this will the first time in their lives that they have been responsible for budgeting. This task can be overwhelming when there's so little money to play with, and once your finances are out of control, it can be difficult to rein them back in. Parents would be wise to sit down with their offspring and work out how much cash they have to spend each week and where this money is going to come from, while at the same time stressing the importance of sticking within this budget.

Barclays reckons that once rent, food and books are taken into account, the average student can expect to spend £7,859 in the first year. Don't forget to allow money for socialising, as this is the best bit of student life, and expect to pay more if you're studying in London.

The problem most parents face is that they haven't got much spare cash to help their children. The Association of Investment Trust Companies reports that 41 per cent of parents haven't saved anything at all, leaving students over-reliant on loans and overdrafts.

Budgeting is crucial, along with careful use of the money available. Student loans should be fully utilised because rates of interest are low and graduates don't have to start paying them back until the April after they leave university. Even then, they must be earning more than £10,000 gross a year.

Cheap student overdrafts are also worth taking advantage of: most banks offer a £1,000 interest-free overdraft, but shop around to see who provides the best rates once this limit needs to be extended.

A shortfall is still likely, and parents who don't have savings should consider a cheap personal loan to meet this. Pick one with the lowest rate - Lombard Direct is offering a typical annual percentage rate of 6.6 on loans applied for via its website. This cash shouldn't be handed over all at once; instead, it should provide a regular income to make student life much easier.

m.bien@independent.co.uk

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