Many students who expect to graduate this year will have debts of £25,000 or more to dampen their enthusiasm as they seek to enter a less than buoyant jobs market. Surveys have found that half of those currently graduating expect that it will take them at least ten years to repay their student debts while one in ten think it could take as long as twenty years to be debt free. With tuition fees inexorably increasing year on year, average student debt could rise to as much as £80,000.
Loans taken out from The Student Loans Company differ from most unsecured loans insofar that they may not be written off in an Individual Voluntary Arrangement (IVA) or in Bankruptcy. It makes sense for students then to think through how they are going to finance themselves when entering third level education and to take steps to minimise future financial pain. The National Association of Student Money Advisors seeks to provide practical support to students in further and higher education by offering tips on student loans, budgets, borrowing and protecting credit status.
Student can obtain loans from The Student Loans Company to cover tuition fees and living expenses. The interest rates charged on these loans are linked to inflation and are therefore relatively low. Normally loan repayments commence after the student graduates, provided gross income exceeds £15,000 p.a. although this threshold is scheduled to be increased to £21,000. Under the new regulations the unpaid balance of the student loan will be written off after thirty years, with the clock beginning to tick from the April following completion of course. Any student who enters an IVA or who themselves petition for Bankruptcy or who is forced into Bankruptcy by a creditor’s petition will find that their student loan will survive both of those process and the balance is still repayable right up to the thirty years milestone.
While still a student, it is important for the student to prepare a household budget each year and to stick to it. In fact a financial plan covering the full duration of the student’s course is recommended with periodic revisions to take account of inflation (or deflation). The student should seek to avail of NUS card discounts, to buy own brands food in bulk and to shop in markets. Ideally students should minimise eating out and as a standard seek to cook, eat and drink at home if possible. Opportunities to acquire free furniture and household goods should be pursued proactively, using small ads to source such requirements, for example. Shopping around for bargains can yield considerable savings and using price comparison sites can help to identify cheaper utilities and insurance.
At the end of the day some level of borrowing will be necessary for the vast majority of students. The first rule of sensible borrowing is to avoid borrowing more than you can afford to repay and ensure that repayments are made on time. If sharing a house or flat with friends or acquaintances it is important they share the burden of paying household bills on a regular basis. Avoid having everything put into your name. If using a credit card repaying the full balance every month will help to build credit history and minimise the build up of interest and penalties. Ask for advice when you need it. Your NUS rep, your student union or CAB will be willing and hopefully eager to help.
While you are a student you can begin to build your own credit worthiness. Start off by checking your credit report. Look up Experian who may be able to provide a free credit report. Register to vote and use that address for credit applications. Apply for credit discerningly and only occasionally. If you make too many ‘willy-nilly’ applications for credit then lenders may begin to have doubts about you and they judged you to be desperate. While you may obtain credit you may have to pay premium interest rates on any funds borrowed. Keep an eye on your credit score. A high score will get you better deals and lower interest.