Study all your options to avoid the debt lecture

David Prosser and Dimitri Pesin offer a financial checklist for students starting their first term

Hundreds of thousands of students start their university careers over the next fortnight, already mindful of the cost. The National Union of Students says the average graduate left college owing £13,500 last term, so getting to grips with finance is the best way to limit the damage.

BUDGETING SKILLS

Money counsellors suggest that students sit down with their families before leaving for college and try to work out realistic budgets for all the costs and living expenses they will incur.

Research from NatWest suggests that this year's student intake is more realistic about the cost of college. The bank's survey of sixth-formers found they expected to spend more on accommodation, alcohol, books, going out, transport and utilities than students last year actually did spend.

For example, the sixth-formers said they thought rent would cost £77 a week - the actual figure for a typical student last year was £69. The only area in which they significantly underestimated costs was food.

Mark Worthington, head of NatWest's student banking arm, says the message on debt has got through. "New students are clearly much more clued up about the financial realities of university," he says. "The anticipated cost of university has risen by 17 per cent on 2005, but students are taking it in their stride and cutting back on spending."

Some universities offer discounts to students who pay accommodation costs up front. Ask your college for a list of all the books and study materials you'll need for the year - then try to get as many of them as you can in second-hand shops.

Many shops, restaurants and clubs in areas with large student populations offer discounts if you have an NUS card. These may be available at certain times or on certain days of the week, so take advantage. In addition, the NUS offers the Extra card; for £7, you get discounts at retailers ranging from Amazon to Topshop. However, saving money wherever you can is only half the battle. Make sure that you understand the complicated rules on state support for students.

TUITION FEES

The bad news is that fees of up to £3,000 a year are payable for most university degree courses. Students do not have to pay up front and they are entitled to take out a student fee loan, paid directly to the college, to cover the cost of fees.

This loan is not repayable until after graduation, and even then only when students start earning £15,000 a year or more. The rate of interest on the loans is pegged to inflation and students pay back the money at a rate of 9 per cent of their pay above the threshold. A graduate earning the average starting salary of £18,000 would pay around £21 a month.

Broadly speaking, these rules apply to all students from England and Northern Ireland studying in their home nations. Students travelling to Scottish universities will also pay fees, but of up to £1,700.

Welsh students staying in Wales will get a grant that covers around half the cost of their tuition. And Scottish students studying in Scotland will pay a one-off fee when they graduate.

GRANTS

Student grants are back - at least for students from families on low to middle incomes. If your household has an annual income of £17,500 or less, you will be able to claim the full maintenance grant of £2,700.

The amount of grant decreases in steps, with no money at all on offer to those from families with incomes of £37,425 a year or more. The downside to receiving a grant is that it reduces the amount of student maintenance loan for which you may apply. The loan you can claim reduces by £1 for every £1 of grant you're paid. Grants do not affect loans for tuition fees.

BURSARIES

Universities that charge the full £3,000 annual tuition fee are legally required to provide students who get the full £2,700 grant with a bursary worth at least £300 a year. The money is not repayable and in practice, many institutions are offering substantially more.

The average bursary this year is expected to be about £1,000. The University of Bath offers up to £1,500, while Cambridge is offering to waive tuition fees to those getting the full grant. Other colleges are less generous, but still beat the minimum requirement - City University, for example, offers up to £800 a year.

If you don't receive a full grant, don't despair. Many universities also offer bursary support on a pro-rata basis, or set what they pay in relation to their own scales of household income.

STUDENT LOANS

Student maintenance loans remain available, but how much you may be able to apply for depends on a wide range of factors. The maximum loan available is £6,170 a year for students in London, falling to £4,405 elsewhere in the country, or £3,415 if you live at home.

There are some qualifications to these figures. First, students who get a grant get reduced loan entitlements. Second, smaller maximums apply in the final year of students' courses. In addition, 25 per cent of the loan availability is means-tested. For students from families with household incomes of £39,900 or more, the amount of loan on offer falls - students from families with household incomes above £48,350 are likely to be eligible only for 75 per cent of the maximum loan amounts. Maintenance loans are repayable on the same terms as tuition fee loans; you don't have to start repaying until you graduate and begin earning £15,000 a year. Interest payments are linked to inflation and you pay 9 per cent of salary above the £15,000 threshold.

OTHER SOURCES OF HELP

Lucy Jones, a counsellor at City University's financial advice resource centre, says: "If you suddenly find yourself in financial difficulties during the academic year, speak to the university's financial support officer - there's no need to suffer when help is at hand." She adds: "The Access to Learning funds give non-repayable assistance to students in financial hardship at any time." Additional money is available to students with children or other financial dependents, as well as to disabled students and those on state benefits.

In addition, there are all sorts of grants and bursaries on offer from the Government, charitable bodies and other organisations for people studying certain courses. Teaching students, for example, may be able to claim up to £9,000. See Scholarship UK ( www.scholarship-search.org.uk), the Educational Grants Advisory Service ( www.egas-online.co.uk) or the Grants Register 2006 (w ww.palgrave.com) for details of several thousand possible awards.

WORKING

NatWest's research shows that half of students now have part-time jobs in term-time, working an average of 14 hours a week. Income from part-time or holiday jobs does not affect your entitlement to student grants and loans. There is no income tax or national insurance to pay on the first £5,035 you earn in the current tax year. Ask your tax office (HM Customs & Revenue in the phone book) how to reclaim this money.

It's important that students don't allow themselves to be exploited. The minimum wage applies whether you are in full- or part-time work. For people aged 18 to 21, the minimum from next month is £4.45 an hour, or £5.35 for older workers.

'I will look for paid work, but it must fit my timetable'

James Pritchard, 19, is starting his second year studying journalism at the University of Central Lancashire. The cost of university was a surprise. "Fixed costs such as rent and books are quite easy to budget for," he says, "but the cost of what you do in your free time is harder to estimate."

Last year, James took out the maximum student loan he was entitled to and had an overdraft at NatWest, his student bank. He reckons he is on course to graduate with total debts of between £13,000 and £14,000.

So far, he's not sought paid employment. "I will look for term-time work, but I don't want my studies to suffer. It will have to fit my timetable." He has a warning for students hoping to save money in the holidays. "If I'm going to get a good job when I graduate I need to do work experience, which generally isn't paid," he says. "That eats into the time you have in the holidays to do paid jobs."

James chose NatWest because it offered the largest overdraft. He warns this year's students not to be swayed by any "freebies" on offer with current accounts. "That said, the offer of a student railcard [which NatWest is offering this year] seems good," he says.

James turned down a credit card. "There's enough borrowing on offer, and a credit card would be dangerous."

'I spend about £120 in total each week'

Charlotte Wilcox, 21, is in her fourth year at the University of Gloucestershire, studying business management. She has no overdrafts with any banks and no credit cards. Instead, she has relied on other resources: "My parents have helped a lot. They've covered the majority of my finances."

Charlotte's other main source of income is her loan. She's received £3,000 from the Student Loans Company for the past two years and will receive the same sum in her final year. But this hasn't been enough to cover her studies.

She paid £75 per week for a room in halls of residence in her first year, but she has now moved to university-approved housing, where she pays £70 excluding all bills. "I probably spend about £120 in total every week, but I work in the summer to earn enough for the year."

With the help of a waitressing job, Charlotte budgeted ahead for her student life. "I managed everything by myself," she says. "I put aside some money for things like books and I knew what I had to spend every week."

Another factor Charlotte took into account was the year's placement with a company in London, which she has just completed. It has given her valuable work experience and boosted her cash.

When she completes her degree next summer, she expects to owe £9,000 in student loans.