Wealth Check: The £30,000 burden that awaits on graduation
What can a student do to cope with the cost of university life and the debt that must be repaid later? By Harriet Meyer
Sunday 14 September 2008
Helen Stevens, 20, is keen to enjoy her remaining two years of student life before tackling the £30,000 debt she faces on graduation. She estimates she will owe this sum, made up of tuition fees and maintenance loans, on completion of her four-year degree in French and German at University College London (UCL).
"We're always hearing about how awful debt issues are, yet in doing a degree you can't avoid it," says Helen, whose family home is in Leamington Spa in Warwickshire. She borrows the full tuition fee loan of £3,070 a year, in addition to an annual maintenance loan of £4,735, which is put towards living costs. Her parents pay her rent, which last year was £130 a week for a room in a shared London flat.
"I couldn't afford this on top of food and travel bills," Helen explains. "London is the most incredible and lively place to study, but it's so expensive."
To help make ends meet, she has been working part-time in a clothes shop, as well as temping during the university holidays. She is now preparing to spend the next year of her studies in Innsbruck and Paris, before returning to London for her final year.
She is set to receive an Erasmus grant – a contribution available to EU nationals studying in other European countries – for her year abroad. This will be paid in two instalments of €1,125 (£912) and €€450.
"This and the maintenance loan will cover my flights and general living expenses, and tuition fees do not have to be paid for my year away," she says.
In preparation for studying overseas, Helen has opened a Nationwide current account to take advantage of fee-free ATM withdrawals abroad. She also has a NatWest student bank account, with a £1,250 interest-free overdraft limit.
"I'm usually overdrawn, although the amount varies and so far I have managed not to exceed the limit. I stay away from credit cards, though money is tight."
After Helen graduates, she plans to pursue a career in advertising. But while she hopes this will be successful, she reckons owning her first home is a distant dream.
"I see myself having to rent for a long time, particularly as I hope to stay in London after graduation."
While Helen will be saddled with debt when she starts her career, plenty of other graduates will be in the same boat.
"And she has done well to avoid slipping over her overdraft limit," says Keith Churchouse from independent financial adviser (IFA) Churchouse Financial Planning. "She should stick with her strategy, and then work out how best to wipe out this debt."
Unfortunately, soaring living costs may mean Helen's total debt rises by more than expected over the next two years. However, the interest rate on her student loans is very competitive at just 3.8 per cent for 2008-09 – or half the rate available to mainstream borrowers at a high-street bank.
Graduates are required to pay back 9 per cent of all earnings above £15,000 until their student loan is cleared. "For example, someone on £20,000 a year will find their annual repayment is £450, or £37.50 a month," says Mr Churchouse.
If she hasn't already done so, Helen should see if she's entitled to a bursary. Following the introduction of top-up fees, many universities now offer a range of grants for those who need help with university costs. For further details, visit bursarymap.direct.gov.uk.
Building a structured repayment plan with specific goals for two, three and five years after graduation will help wipe out debt, says Colin Rothery at IFA Throgmorton Financial Services.
In the meantime, there are various methods Helen can use to reduce her borrowings. For example, basic lifestyle changes can make a big financial impact, such as cycling to and from lectures if possible, says Dennis Hall from IFA Yellowtail Financial Planning.
She should also apply for an international student identity card. This costs £9 but offers a range of discounts on travel and flights.
Currency fluctuations while she's abroad will add to Helen's outgoings as she transfers from sterling to euros, explains Mr Hall. "But the Nationwide account will help as at least it doesn't charge commission on transactions," he adds.
If she believes sterling is going to weaken against the euro, she should consider exchanging her money before she leaves.
Further down the line, when her course is over, she should cast an eye over the graduate package on offer from NatWest to see if it has a good interest-free overdraft limit for at least a year, says Mr Rothery.
Also, any savings that Helen manages to amass over the coming years, however small, should not be used to repay her overdraft unless she has gone over the limit, stress the advisers.
Abbey's e-saver account, for example, pays 6.5 per cent. She can earn tax-free interest by registering as a non-taxpayer with HM Revenue & Customs and completing form R85.
"It's not uncommon for students to take advantage of their tax-free status," says Mr Churchouse. "They can use interest-free overdraft limits alongside the high deposit rates around at the moment"
Fortunately for Helen, house prices are likely to continue to slump over the next few years, says Mr Rothery. So it is no bad thing that she will be unable to step on to the property ladder for a while.
"There are probably going to be more and more properties for let, and she can try to drive a hard bargain on rent," he adds. "She should do her homework by checking which ones have remained empty for some time."
Travel cover for her time in Austria and Paris should be an important item on her to-do list.
"Speaking to people like the International Student Travel Confederation ( istc.org) to see if they have a tailored insurance package may be helpful," adds Mr Churchouse.
Diving in at the deep end is no excuse for shirking the style stakes
Consumers given power to choose a green deal
Mark Dampier: A safe harbour if the market recovery has overreached itself
'Scrap the trap': calls for change grow as banks are told to play fair with loyal savers
Bargain Hunter: Eurostar offers child fares for £1 each way to Paris, Brussels and Lille
Relaxed pensions rules: Guide to what they mean to you
- 2 Loom bands: Bids for dress made from colourful rubber pass £170,000 on eBay
- 3 Why I'm on the brink of burning my Israeli passport
- 4 L'Oreal cuts ties with Belgium supporter Axelle Despiegelaere after hunting trip photographs
- 5 The true Gaza back-story that the Israelis aren’t telling this week
Sustained immigration has not harmed Britons' employment, say government advisers
War is war: Why I stand with Israel
7/7 memorial defaced on anniversary of 2005 attacks with ‘Blair lied thousands died’ graffiti
Australia facing international condemnation after turning around Sri Lankans at sea
Even when it brutalises one of its own teenage citizens, America is helpless against Israel
Socialist Worker called to apologise over ‘vile’ article saying Eton schoolboy Horatio Chapple's death is ‘reason to save the polar bears’
iJobs Money & Business
£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...
£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...
£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...
£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...
Day In a Page
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
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square