Cut the cost of college: Students should shop around for sources of finance to minimise the expense of their education

CHOOSING the right bank at the beginning of your student career can save hundreds of pounds in interest on debts that will inevitably mount up. But keeping overdrafts as low as possible is vital.

A student at First Trust Bank, in Northern Ireland, for example, would pay almost pounds 175 annual interest on a pounds 1,500 overdraft of which pounds 300 is unauthorised.

By contrast, someone with a Halifax Maxim current account would pay nothing if they are pounds 1,000 overdrawn. Going over that amount can have alarming consequences. A pounds 1,500 overdraft will lead to the building society charging at the unauthorised rate of 11.2 per cent for the full overdraft, plus a pounds 10 monthly charge, giving a bill of pounds 294.

The choice of bank will become even more vital as student debt continues to mount up. A recent survey on student debt by Lloyds Bank found that average debts were up 50 per cent on last year, with students outside London owing pounds 916 per year of study. In London, the figure was pounds 1,077. This would put a number of students beyond the interest-free limit offered by many of the banks.

Louise Ashon is a former knitwear machinist from Leicester. Doing a law degree at the London School of Economics has left her with debts of nearly pounds 4,000.

Ms Ashon, aged 28, owes pounds 1,200 to her bank, Lloyds. The rest is owed to her credit card issuer and the Student Loan Company. Credit cards are a very expensive way of being in debt, with typical annual rates of more than 20 per cent.

As with most students, she found her full annual grant of pounds 2,845 last year - outside London it stood at pounds 2,265 - too little to live on. Even with her student loan, which was pounds 940 last year, making ends meet was impossible. She said: 'The problem is that rent, especially in London, takes a huge chunk out of your grant. In my case it was about pounds 60 a week. So that's most of your grant gone in one fell swoop.'

Potential students have a number of different sources of finance.

Grants. The amount students receive has dropped by 10 per cent compared with last year and will fall by a further 10 per cent in 1995/96. Mandatory awards this year stand at pounds 2,560 in London, pounds 2,040 elsewhere. Students living at home receive pounds 1,615 a year. Student loans are supposed to take up the slack.

Awards are means-tested. For example, a couple jointly earning pounds 25,000, with two teenage children, a pounds 60,000 mortgage and pension contributions of pounds 100 a month could be liable for a drop of pounds 600 a year in the student grant.

Students who believe they are entitled to a grant must apply to their local education authority.

Student Loans. These are now supposed to be replacing grants. In 1994/95 they stand at pounds 1,375 in London, pounds 1,150 elsewhere. Students at home receive pounds 915. Final-year students get less: pounds 1,005 in London, pounds 840 elsewhere, and pounds 670 for those living at home.

They are repayable the April after graduation, if earnings are in excess of about pounds 14,000. Loans are interest-free, but the amount owed rises in line with inflation. The repayment period is five years.

Banks. All the main high street banks and some building societies are now vying with each other to attract students by offering them perks such as interest-free overdrafts. Some also offer cheap loans after graduation.

Sponsorship, charities and trusts. A number of charitable organisations now offer small grants to students. Some companies also do the same, in return for them beginning their career with that firm. It pays to check whether a course - or a parents' occupation - qualifies one for an award.

University access funds. Many colleges have their own hardship funds, sweetened by government grants given each year to alleviate particular student hardship. Each university has its own criteria for giving such grants.

Tax. Students can earn pounds 3,445 without paying tax. Grants, loans or parental contributions are not treated as taxable income. To stop tax being deducted at source from wages, ask for the Inland Revenue's form P38S before starting work.

Student Loan Company, 0345 300900. 'Money to Study', available ( pounds 11.95) from Educational Grants Advisory Service, c/o Family Welfare Association, 505 Kingsland Road, Dalston, London E8 4AU, 071 254 6251.

----------------------------------------------------------------- RATES ON STUDENT BANK ACCOUNTS ----------------------------------------------------------------- Authorised Unauthorised Interest if Interest-free o/d (%) o/d (%) in credit(%) o/d (pounds) Bank of Scotland 10.25 25.25 3.25 500 Barclays Bank 6.40 18.30 1.00 400-700 First Trust Bank 9.25 29.25 0.30 - Halifax 6.20 11.20 3.75 1,000 Lloyds 6.40 26.80 1.00 400-800 Midland 5.40 9.50 2.72 500-700 NatWest 9.00 29.50 1.50 400-500 Northern Bank 7.25 18.25 0.50 - Royal Bank of Scotland 8.25 negotiable 3.00 400-600 TSB 7.20 29.80 3.50 400 ----------------------------------------------------------------- Source: MoneyFacts -----------------------------------------------------------------

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