Student Loans - Handle With Care

Starting off in life

It's fair to say that those infamous 'best years' aren't called the university of life for no reason. After all, most of us leave a little bit wiser than we went in and inevitably learn a thing or two about the real world, you know, how mould has the ability to grow almost anywhere and that you really will drink again no matter what you say the next day.

But are there more valuable lessons to be learnt?

The way I see it, leaving home, living & working with new people, having to fend for yourself and most importantly, learning the true value of money and how to manage it are crucial life skills.

But is the cost too high?

Call me crazy but mixing 18 year olds, the first taste of freedom and £6,000 cash a year seems to me to be a lethal combination. Throw in a few 2 for 1 offers on lager and the damage could be irreparable. With 83% of students taking out loans and 73% surviving on overdrafts, student debt is a serious issue.

How much are we talking?

Most students will be entitled to 2 types of loan:

(i) A fee loan
(ii) A maintenance loan

The amounts available will depend on individual circumstances but the maximum is in the region of £3,000 on each loan, ie. a borrowing of £6,000 a year. The fee loan is described as being a way to defer payment of the fees but ultimately increases how much you have to repay. To calculate an estimate of your entitlement visit the government calculation site.

Where does it all go?

One needs to be realistic. The cost of living is not cheap. Everything costs money, I sometimes feel I can't leave the house without spending money. So let's break it down:

1. Student tuition fees are currently around £3,000 a year.
   
2. Most of a student's maintenance loan will go directly on rent. Average accommodation costs are in the region of £60 a week. Assuming you pay rent for 40 weeks of the year, that's already £2,400.
   
3. Monthly bills can also make a dent. Regular household bills along with internet connection and mobile phone usage can cost hundreds of pounds.
   
4. Course text books are also a costly essential. Each new term brings with it a lengthy reading list (usually filled with course lecturers' masterpieces).


5. Food and drink and I'm not talking about the inebriating sort, that deserves a whole line of its own. A realistic budget would be in the region of £40 a week which again over 40 weeks amounts to £1,600.


6. Travel costs can also quickly mount, be it car costs, bus passes or taxi rides. A student bus pass in Birmingham costs £120 a term, which totals £360 a year.


7. Alcohol/Entertainment - priceless!


8. Clothes/Shoes/Personal Hygiene - at your discretion.

This link provides a useful tool to estimate your cost of living: Cost of living calculator

So it's easy to see how so many people struggle to come out of uni unscathed.

The student loan service is there to provide people with the opportunity to get a further education that they might not otherwise be able to afford, in the hope that their future earnings will be adequate to afford repayments. I'm not saying people shouldn't take advantage of the services but I am warning people to handle them with care. In the wrong hands, debt of this level can lead to decades of repayments at a time in your life when there will be far more important things to spend your money on. The temptation of living on credit can result in resentment as it becomes more and more difficult to remember where the money went. Worst case scenario, bankruptcy is an all too common option for students leaving university these days. An option that will destroy your chances of any credit rating for at least 6 years and close a lot of doors round about the time doors should really be opening up for people.

Payback Time

Borrowers will have to start repaying their loan as soon as they earn more than £15,000 a year.

This is when the reality of all those late nights and shopping sprees really hits home. A student who borrows £6,000 a year for 4 years will leave university with a debt of £24,000 assuming no overdraft facilities or credit cards are used.

In order to pay this off within 20 years (when you're likely to be in your early forties) you will need to repay around £150 a month, assuming a rate of inflation of 4.5%.

Top Tips

• Put any money you borrow into a savings account and limit the amount made available to yourself each month. Alternatively ask your parents to do the deed, I'm sure they'd be more than happy to help!


• If you have any surplus cash, try and make the most of it by storing it in a high interest savings account or a mini cash ISA.


• Avoid credit cards like the plague.
  
• Work part-time. This will not only increase your income but will also give you less time to spend all your money. Working in retail could get you good discounts and working at the university student bar means you still get to socialise but you can make money at the same time.
  
• Try and keep funds aside each month for those nasty bills that always arrive when you're least prepared.


• Be nice to your parents.
  
• Invest in a monthly bus pass or even better, cycle/walk to uni.


• Share books or make use of the local library or second hand book shops.


• Learn the value of supermarket food compared to convenience stores and take-aways. A little bit goes a lot further and you can even order delivery groceries.


• Regularly check your bank balance, preferably on-line, as it's important to be aware of your spending.
  
• Make a note of your big expenses, again, awareness is half the battle.
  
• Apply for a grant.......

Go forth and prosper

I'm not discouraging people from getting a university education, it's the best thing I ever did, but I am saying that exercising a bit of caution now will save a lot of stress later.

For more information about applying for student loans or grants, check out the government website: http://www.directgov.gov.uk/