A-level results are in – now for the big financial test
Thousands of young people will be heading for university in just a few weeks. Time spent managing finances now can pay dividends for years to come. Chiara Cavaglieri and Julian Knight report
Sunday 23 August 2009
For the hundreds of thousands of young Britons who collected their A-level results, last Thursday was a red letter day. The nervousness and waiting would have been worth it for some as they now prepare to take up the university places they set their sights upon. Others now face the scramble for places through the clearing system. Whatever the scenario, over the next six weeks, students will have to make some big calls – not the least of which will be financial.
Accommodation has to be rented, current accounts opened and lines of credit secured. The Push student guide estimates that this year's student intake will graduate with about £23,000 worth of debt on average. Borrow this money from the wrong place, at too high a rate of interest, and the consequences can be painful and long lasting. "With such massive debts the norm, students have to learn to budget from day one. They can't afford to let things slide," said Danny Cox from independent financial advisers Hargreaves Lansdown.
News that tuition fees are likely to rise will make coping financially through university even trickier, so here's The Independent on Sunday survival guide for everything from credit cards and bank accounts to bursaries and accommodation.
Student loans and bursaries
English universities and colleges that charge the maximum tuition fees, £3,225 for 2009-10, must offer bursaries of at least £319 for students receiving the full maintenance grant, although many will offer more. Full-time undergraduates who are not eligible for any bursaries will still have access to student loans of up to £4,950 a year, or £6,928 in London, to cover their tuition fees and to help with living costs. Debt owed to the Student Loan Company (SLC) is taken out of a student's salary after graduation at 9 per cent of annual earnings over £15,000. Interest rates are based on the retail price index (RPI) and set in March each year. At the moment, students are paying no interest on their loans because the RPI fell below zero.
For Scottish students, tuition fees are paid by the Student Support Agency and do not need to be repaid. They are also eligible for a living costs loan of up to £4,625. Households with an income of less than £34,195 are eligible for a bursary of up to £2,640 in 2009-10. In Wales, students are entitled to a grant of up to £1,940 a year, irrespective of family income, which does not have to be repaid. They can also apply for a means-tested Assembly learning grant of up to £2,906 for households with an income of less than £39,793.
Picking the wrong current account could start off university life on the wrong financial foot. Freebies shouldn't be the deciding factor. The most important feature for students is interest-free borrowing so, first and foremost, they should check the overdraft limit.
For this year, students wanting to borrow more than £1,500 should take a look at the student accounts from Halifax and Barclays which offer up to £3,000. However, note that these are maximum overdrafts and will typically be approved on an individual basis. Several lenders also offer a tiered overdraft, increasing each year, which may be a useful way for some students to budget more carefully.
The next important feature is the rate at which any additional borrowing is charged. The average authorised overdraft rate currently stands at 8.05 per cent, but there are providers such as Abbey and the Co-operative charging as much as 9.9 per cent. In-credit interest rates are also important for those who think they will be able to maintain a healthy balance. Most offer poor returns, with the average in-credit interest rate at a mere 0.46 per cent and many offering 0 per cent. However, the Abbey student account does pay 2 per cent on balances up to £500. Similarly, unauthorised overdraft rates – the charge for exceeding the authorised limit – can be a colossal 30 per cent.
Most students will be offered a credit card upon opening a student bank account. Many of them are tailored for students, such as the NatWest student card which offers discounts on iPods and computing products and one month's worth of free DVD rentals with Outnow.
Credit cards can be useful for large purchases such as laptops as credit card purchases between £100 and £30,000 are covered by Section 75 of the Consumer Credit Act. Also, some credit cards offer handy rewards such as the American Express Platinum Moneyback card which pays 5 per cent cashback for three months up to a maximum of £100. After this, rates are tiered depending on the amount spent, down to 1.25 per cent cashback. "It's probably the first time they'll be using a credit card regularly so they need to think about why they're using it," says Liz Willder from insurance comparison site Tescocompare.com. "Is it because they can't afford something, or are they using it strategically for protection or some kind of reward?"
In most cases, however, credit cards and personal loans are not suitable for students as, without a regular income to repay the debt each month, even a few hundred pounds can quickly escalate to unmanageable levels. It is far cheaper to make the most of the interest-free overdrafts on offer from student current accounts. Those returning from a gap year may already have credit card debt, in which case it is worth considering a 0 per cent balance transfer card. The best buy on the market is the Virgin Money MasterCard, which charges 0 per cent on balance transfers for 16 months, with a handling fee of 2.98 per cent and 0 per cent on purchases for three months, after which it charges a typical rate of 16.6 per cent APR.
The cheapest option by far is for students to stay at home and go to a university nearby. Halls of residence offer a cost-effective alternative for first-year students and will almost certainly be cheaper than renting from the private sector. There is no liability for council tax in either halls or a house or flat occupied just by students.
Once students are out of halls of residence and are moving into new digs, it is vital to ensure their rental deposits are safe. Landlords are required by law to use one of three tenancy deposit protection schemes to protect their money – the Deposit Protection Service (DPS), mydeposits and the Tenancy Deposit Scheme (TDS).
Utilities and other living costs
Before moving in, students should ask to see a copy of gas safety certificates and establish who is responsible for bills. Meter readings should be taken and given to energy suppliers. If necessary, students should ask their landlords if they can switch to a cheaper utility tariff. If the property will be standing empty for a fair proportion of the year, it would be economical to switch to an energy tariff that does not include a standing charge. In addition, check bills against your own meter readings, as estimates are often more expensive. If possible, avoid properties with a prepayment meter; it is estimated that this is up to 39 per cent more expensive than quarterly billing.
Course materials such as books can cost hundreds of pounds, so consider sharing the cost of pricier texts with other students. Keep an eye out for second-hand books from second- and third-year students and sites such as www.sellstudentbooks.co.uk. For everyday savings, an NUS Extra card costs £10 and offers discounts at several retailers, and websites such as www.studentbeans.com list student offers and deals.
Most students will be laden with all kinds of gadgets and electrical kit that are a prime target for thieves, such as MP3 players and laptops, so it's important to have the correct insurance.
Firstly, students should see if they are covered for free under their parents' household policies. The students' union may also have an arrangement with a specific insurer. Unfortunately, because of the high-risk nature of student accommodation, some providers charge hefty premiums, so it is worth looking into specialist student insurance. According to price comparison service Confused.com, a 19-year-old male attending the University of Glamorgan, living in private rented accommodation with two other adults and no alarm, with £4,000 worth of contents cover including high-risk items such as a laptop, TV and iPod would pay between £206 and £271 a year through standard home insurers, while specialist student insurance from Endsleigh costs only £139. If you're a cyclist, check to see whether you can add cover against theft to your home insurance. Alternatively, specialist cycle insurance is also available through firms such as Cycleguard or from cycle retailers. Be warned, though, up to 400,000 bikes are stolen each year so premiums are generally quite high and on the rise.
Many students opt for third-party, fire and theft cover because they think it's significantly cheaper, but the difference in premiums with fully comprehensive is often small. For example, a 19-year-old student attending the University of Sheffield and driving a Ford Fiesta, fully comprehensive would cost £1,238 and third-party fire and theft would cost £1,196. Remember that moving home can affect premiums and don't be tempted to pretend that the car is still parked at home. It is fraudulent and those caught won't have their claims honoured. Another common fraud is called fronting. This is where parents put their child on the insurance as a named driver but they are actually the main driver. Fronting is illegal and insurers are becoming wise to key indicators that it is going on.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Scottish referendum: So how about the English now being given a chance to split from England?
- 2 Friends 20th anniversary: Alison Jackson photographs reunited cast
- 3 London council removes 'unacceptable' Stamford Hill posters telling women which side of the road to walk down
- 4 The response to my Pizza Express review has been overwhelming, and taught me a lot about journalism
- 5 Free U2 album: How the most generous giveaway in music history turned into a PR disaster
Scottish independence referendum: A nation divided against itself
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
Archbishop of Canterbury admits doubts about existence of God
Portuguese academic says British are 'filthy, violent and drunk'
iJobs Money & Business
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...
Day In a Page
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize