Lessons in debt - planning student finance

With A-levels now over for most sixth-formers, those hoping to head off to university in at the end of the summer need to start doing their sums now if they want to get their finances in order for freshers' week.

How much being a full-time student will cost depends on the course you choose and where you study. From September 2006, new full-time higher education students studying in England can be charged up to £3,000 a year in tuition fees. As well as fees, students will also have to pay for day-to-day living expenses such as accommodation, food, books, travel and so on.

Traditionally banks pull out all the stops to get student customers, hoping they will become customers for life. Typically they tempt students to sign up to their current accounts with free gifts and gimmicks, but the deciding factor for any prospective student should be the size of the interest-free overdraft on offer.

To date, Halifax appears to be offering the best deal for 2006 with interest-free overdrafts starting at £1,750 for a student's first year of study, rising to £2,100 in years three to five.

Peter Jackson, head of banking and savings at Halifax, says, "With the end of the student grant, the introduction of tuition fees and ever increasing living expenses, being a student has never been more expensive. These increased interest free overdrafts could mean a significant saving over a three-year course of study - far better value than a record token or other gimmicks."

Meanwhile rival Natwest is sticking with the old favourite: the young person's railcard worth £100 which gives students one-third discount on most rail fares in the UK. It is also giving away a free Windows Live Messenger webcam to students who apply online before 1 August. Its 2006 package also includes a negotiable overdraft facility where all agreed borrowing above the set yearly limits (£1,250 in year one, £1,400 in year two, £1,600 in year three, £1,800 in year four and £2,000 in year five) is also interest-free.

How Student Loans work and how you'll pay them back

Most students won't be able to survive on their overdraft alone and many will need a student loan. Those living away from home and studying outside London can apply for a £4,405 loan and those studying in London £6,170. If you haven't already applied for a student loan, you may be on the late side - applications to the Student Loans Company should have been received by 30 June to be sure of getting the money before the start of term

You only have to repay student loans after you leave your course and are earning more than £15,000 a year. Repayments will start from the April following the date that you leave your course. Some students from less well-off families can also apply for a £2,700 maintenance grant which they do not have to pay back. More information is available on the government's Student Finance website has more information on student grants and loans and details on how to apply.

If overdrafts and loans are not enough to keep freshers in baked beans and beer, students can opt for credit cards too although they might find the most competitive deals are not available to them due to a lack of credit rating. Most credit cards available to students tend to come with a low credit limit and high interest rate which makes them an expensive source of credit.

For students who find themselves really struggling with their finances, hardship loans were introduced in 1998. To be eligible you must have applied for the maximum amount of student loan available to you. However in some circumstances and if the university / college agrees, you may apply for the student loan and hardship loan at the same time. You may apply for anything between £100, and £500 but can only make one application during your academic year. Applications should be made to the student services department at your university. To be eligible you must provide evidence of real need, and that there is no solutions such as an overdraft. You can use hardship loans for books, travel, and general living costs.

Hardship funds are also available to students who require further financial help due to unexpected circumstances. You are only able to apply for a hardship fund if you are experiencing serious financial problems and if your course qualifies; your university or college will be able to tell you this. You will usually have been expected to take out a hardship loan before being considered for a hardship fund. Traditionally hardship funds are usually given as a grant, so you do not have to repay this (unlike a hardship loan). Depending on the university / college the fund can be paid as one lump sum or over a period of time.

30 June 2006 © Moneyextra.com

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