How to make a little go a long way

The debt of the average student is £13,500 and rising. Gwenda Thomas outlines the ways in which you can minimise your expenditure

If you are looking for ways to help your offspring financially through university, you have already made a smart move. Timing is everything this year and in deciding to give birth to little Johnny or Joanna before August 1987 you were spot on.

The reason is now obvious: students born before then and entering university this autumn are the last of the lucky generation - they will escape paying top-up fees and that, in anyone's budget book, is a major saving.

Before you start feeling too smug, it doesn't mean university is going to be cheap - far from it, just that they are not going to have to repay their fees once they are earning.

Debts for students leaving university this year are estimated at an average of £13,500 (Barclays Graduate Survey) and you can expect that to increase steadily over the next three to four years. But spare a thought for the top-up fee generation: they are likely to have an additional £5,400 to £8,400 added to their university debt. Barclays Bank has estimated that, by 2010, their end of study student debt could reach a colossal £33,700. There is a crumb of comfort for this class of 2006: from next year there will be many more bursaries on offer - but these are mostly for those from low-income families. For those not in that category it will be tougher.

The financial picture for students entering university this year looks like this:

Fees: £1,175. Assistance is given if parents' residual income is under £32,750. Students whose parents' residual income is less than £22,010 pay nothing.

Loan: £4,195 a year (slightly more if studying in London, less if living at home). Twenty-five per cent of the loan is means tested on parents' residual income, so students from families with an income over the £32,750 fees threshold will receive a smaller loan.

Parents are expected to provide the portion of the loan and the fees that are not awarded. You can't be forced to pay, but it's your offspring who will suffer if you don't. The maximum amount parents are expected to provide for one child is £2,225 (£2,470 if studying in London. £2,005 if living at home). Many parents do contribute more. But for some it is an impossible struggle.

Scottish students studying in Scotland are in the best position of all. They pay nothing up-front. However, parents over the border are no better off. The portion of the loan that is means tested is much higher in Scotland than in the rest of the UK, so while the final bill for students may be less, parental contribution will be about the same.

For the lucky top-up fee dodgers, the introduction of the new system next year will actually bring in two excellent benefits, which they will also enjoy:

* While fees this year are paid up front, from next year students can borrow money to cover their fees from the Student Loan Company, add it to their student loan debt and pay it off gradually once they are working.

* The loan allowance next year is to be substantially increased, especially in London, and in the final year. Although this means more debt, it will ease the financial struggle for many.

Don't turn your back on the student loan. This is just about the cheapest money that can be borrowed, as the only interest paid is in line with inflation. Parents anticipating fully funding their offspring through university, but who will have to borrow to do so, should seriously consider asking their student child to take out their loan entitlement, and then pay it off for them. And if parents don't need to borrow, fully funded students might find taking the loan and putting it in a high interest rate account, in case they need funding for further study, an astute move.

Is the student loan enough for a student to manage on? In past years my answer has been emphatically no. But things are changing. Many first year students work and save during the summer vacation and so are able to arrive at university with extra cash in hand - often well over £1,000. This is advisable, possibly essential, as settling in, especially during the first term, is always expensive. There are clubs to join, books to buy, friends to make and the social scene can be costly.

As for next year, the promised loan increases have not been announced yet, but it is unlikely that they will be enough to cover all expenses and this will certainly increase the final debt. Most students work during vacations, many also during term time. Nearly all universities have job shops, which offer a wide variety of jobs. Many of these jobs are within the university itself, which means having an employer who is sympathetic to the pressures of study. Students should contact their job shop early if they want the pick of the jobs.

There are other ways to raise extra funds, but don't expect miracles. Too many students are dipping into a very limited cash pot. The possibilities include:

* Sponsorship from employers, could be worth £1,500 per year, plus vacation work (contact companies direct or check with universities)

* Charities and trusts - parents' own employer might have a fund to help students - otherwise contact the Education Grants Advisory Service (EGAS) on www.egas-online.org.uk/fwa/trustsearch.htm)

* Bursaries provided by universities (see Universities Scholarships and Awards by Brian Heap or university prospectuses.)

* University hardship funds - available to help out in a major crisis. No student should suffer unmanageable debt in silence. Contact the university welfare service or student union

* Banks - these offer students a free overdraft facility of £1,000 - £2,000 which is a useful sum at times of crisis. However, it's worth warning your offspring, it means more debt.

Every year parents ask me the best way to fund their children through university. My reply is always, "How good is your child at handling money?" If they are financially astute, then a cheque at the beginning of term or each month is ideal. If you have doubts about their budgeting skills, paying fees and rent/hall bills is a wiser move. At least then you know they have a roof over their head and a course to study.

Whatever you decide to do, make an arrangement and stick to it - a cheque that arrives a week late or is only half what is expected adds up to trouble. Students are usually very loyal when parents mess up, but not being able to pay a rent bill and having to borrow from friends is more painful than they may let on.

Finally, a word of advice for the rising top-up fees generation: enrol at a Welsh university. The Welsh Assembly have decided not to introduce top-up fees until 2007 and will stick with the current system until then. It may only be a year's stay of execution, but that's money better off in your pocket than anywhere else. However, check it out nearer the time, governments have a sneaky way of quietly plugging such obvious loopholes.

The writer is the author of Students' Money Matters, published by Trotman

The first term: what it costs

Henry Wright, a first-year economics student at the University of St Andrews, is in no doubt about the cost of his first term at university: "It was expensive - very expensive, but you don't buy an academic gown every term and club membership fees are for the whole year. Living in halls, you tend to go out more - especially at weekends when food is not provided."

He shared a room with another student with whom he fortunately got on well: "It's very basic here. Just a room with two beds - no en-suite and you shared a bathroom and kitchen with a whole lot of other students."

Henry worked as a farm labourer last summer and saved £2,000. So, with the help he receives from his parents (they pay for his fees and hall costs) and his student loan, he arrived well in funds. Still, he needed to be: he says his first term cost him about £3,538.

Henry's major outgoings over that first 10 weeks were:

Fees: £383 (one third the total) which he has to pay, as he's from south of the border

Hall costs: £1,164.24 a term, plus £55 hall subs

Food at the weekends: £200

Books: £111.96 -"...And that was just for four books - outrageous!"

Ski trip: £460

Socialising: £300

Academic gown: £110

Travel home twice: £114

Mobile phone: £90

Rugby: £80 - team membership and match fees.

Vices: £80 - (muffins, crisps, chocolate)

(Based on research carried out for the new edition of Students' Money Matters.)

A word of warning - don't underestimate the cost of the first term - it can be the undoing of many students, condemning them to three years of anxiety, debt and misery. Stories of students spending £3,000 in their first year just on socialising abound, although you never seem to find anyone who has actually squandered that much. However, there certainly is overspending, and once you get in bad debt, it is very difficult to get out of it.