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News, Student Debt

“Students need to do their sums to avoid a lifetime of debt “

IF you’re heading off to uni next month, the lesson is clear: sort your finances now or face a lifetime of debt.

Around 436,000 are starting their studies in September, and they need to know as much about managing their debt as the subject of their course.

Despite the fact this autumn see the last lot of students sneaking in before the massive hikes in tuition fees, most will still be leaving with debts of more than £20,000.

As well as tuition fees, the cost of living keeps rising – all the basics from rent to energy bills, food and train fares – meaning many will end up owing in excess of £30,000.

Choosing the right bank account is more crucial than ever. Andrew Hagger, from Moneynet.co.uk, says: “Even though times are tough, banks are still hungry for a share of the student banking market.

“After all, they’re the potential big earners of tomorrow and banks want to sign them up for their profitable investment, pensions and mortgage products in later life.”

But Andrew says students should forget the freebies and gimmicks as a bigger interest-free overdraft has to be the winner for students every time. It is the one thing that will help save money.

While the majority of accounts offer up to a maximum of £2,000 interest-free overdraft over five years, two banks, Halifax and HSBC, are a little more generous, with a £3,000 limit. While you should keep debts as low as possible, this extra £1,000 could mean you don’t get hit with hefty interest charges if you have to borrow elsewhere.

If you could borrow an extra £1,000 interest free, you would save almost £100 every year compared with a student bank account that was to charge an interest rate of 9.9% for authorised borrowing.

Or borrowing £1,000 on a credit card, where you could easily pay between £180 and £200 per year in charges.

But, neither Halifax or HSBC offer this as a tiered overdraft facility, which will put the onus on students not to get carried away and overspend.

Other banks, such as Natwest, Santander, Lloyds TSB and the Co-op, although they offer lower limits, do it in tiers so students can’t blow their overdraft in the first term.

When it comes to incentives, they are pretty poor this year anyway with offers including free mobile phone insurance, discounts on laptops, commission-free currency and free music.

And, here’s a sobering thought that might help students make better financial decisions and be more savvy.

Michael Ossei, from uSwitch.com, says: “Students face a lifetime of debt when they finish. A future blighted by student debt and poor job prospects means it takes graduates 11 years to clear a £21,198 of student debt – and that’s only set to go from bad to worse as fees go up for future generations.

“And nearly four in 10 graduates have been forced to put their life on hold due to debt. A quarter have put marriage plans on hold and a third have put off starting a family.”

Read more: http://www.mirror.co.uk/advice/money/2011/08/24/students-need-to-do-their-sums-to-avoid-a-lifetime-of-debt-115875-23366862/#ixzz1Y0z9AY3C

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