Managing Student Debt

Student debt is a fact of life for anyone attending higher or further education courses. How much student debt you leave college with is something you can control. This student debt guide introduces the ways available to help fund your course.

• What financial help can I get from the Government?
• Does the Government offer any non-repayable aid?
• Am I entitled to a university bursary?
• Am I entitled to a scholarship?
• Will my employer fund me?
• What about educational trusts and charities?
• Where can I find out more about student finance?
• What steps can I take to make the most of my cash?
• How can I get back in the black after graduation?

Avoiding student debt is an uphill struggle with the cost of higher education at a record high, so how can you make the most of cash aid to reduce the burden?

The good news is that with financial help from the government, university bursaries and charities on offer, there is an array of funding to tap into. Also, if you are set on a specific career course you may also find your future employer is willing to pay something towards your studies.

So, while choosing and being accepted for the right course is very important for your future, ensuring you don't end up lumbered with mountains of debt at the end of it is also vital.

What financial help can I get from the Government?

There is a total of £350 million up for grabs in scholarships, bursaries and awards alone (Source: Office for Fair Access 07/12/2005) - so it pays to do your research and find out what you are entitled to. The Government devised a new student finance package following the introduction of top-up fees in 2006, which saw sharply increased costs for those heading to university.

From September 2007 the vast majority of universities will be charging a hefty £3,070 a year for tuition fees alone - and thats before costs for accommodation, food and course materials, let alone a social life. To help meet the cost of this, there are now two types of student loans on offer: tuition fee loans, and living cost, or maintenance loans. Both have interest rates which are linked to inflation and reviewed each year. They do not need to be repaid until after graduation. The interest rate for the 12 months commencing September 2007 is 4.8%.

Tuition fees loan

All students are entitled to a tuition fees loan, and may apply to borrow up to the maximum charged by their institution each year, rather than finding the money themselves. For example, if your university charges the full £3,070, you can borrow this amount each year to meet this cost. But if you need the money for the start of term, apply as soon as possible or it may be delayed. You must apply within nine months of the start of each academic year for which you want financial help.

Maintenance loan

Turning to maintenance loans, all full-time students are entitled to 75% of this towards living costs - and the amount will depend on where they are studying, the academic year and if they are living at home or not. The remaining 25% is means-tested, and dependent on your family income bracket.

Students with a family income of £38,805 or less will qualify for the remaining quarter. Those with a higher family income will be entitled to £1 less for every £9.50 of income above this sum.

So, for example, if you lived away from home and studied in London you would be entitled to up to at least 75% of £6,315 in maintenance loan for the academic year 2007 / 08. The remainder will be means-tested.

Both tuition fee and maintenance loans do not have to be repaid until students are earning more than £15,000 a year before tax. Repayments are currently set at 9% of any earnings above £15,000. For example, a graduate earning £18,000 a year would pay back £5.19 a week regardless of the sum they borrowed in the first place.

Student debt is administered by the Student Loans Company, a UK public sector organisation established to provide financial services, in terms of loans and grants, to over one million students annually, in colleges and universities across the four education systems of England, Northern Ireland, Scotland and Wales.

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Does the Government offer any non-repayable aid?

Maintenance grants do not have to be repaid, although students from a family with a household income of over £38,330 will not have access to these. Only those with a household income of £17,910 or less will be entitled to the full £2,765 annual grant (2007 / 08). If your family income falls between these figures you are eligible for a partial grant.

If you are only applying for the non-income assessed part of the maintenance grant applications must be submitted by April 27 to receive payment in time for the following academic year. Any income-assessed applications must be submitted by June 29. All applications after this date will be assessed as quickly as possible. Remember, every year of your course will require a new application for financial help.

Other forms of support include means-tested hardship and access funds for disadvantaged students which do not have to be repaid. To see if you are eligible, you should approach your university or college directly.

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Am I entitled to a university bursary?

Universities offer student bursaries of usually between £300 and £5,000 a year. But a staggering two-thirds of students are unaware of this non-repayable fund, according to a poll by the Department for Education and Skills (Source: Guardian 30/05/2007).

The DfES has a Bursary Aware map, with links to 219 universities and colleges detailing the help on offer. The amount available will vary according to the institution and the student's circumstances.

In the 2005-2006 academic year, first-year students received more than £115 million in non-repayable bursaries and scholarships (Source: Student Loan Company 28/11/2006).

If a university or college is charging the new maximum £3,070 a year in fees it must offer bursaries to students from lower-income families receiving the full £2,765 maintenance grant. In this case, bursaries usually average £1,000 for each student. For example, Warwick University offers bursaries of up to £1,100 a year to all students with a family income of less than £38,330 who are in receipt of a maintenance grant.

To apply for a bursary, you will need to approach your university to find out what is available. The application will either be handled by the university or by Student Finance Direct, a partnership between the Student Loans Company, the DfES and various local authorities.

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Am I entitled to a scholarship?

Some universities offer awards for those studying particular subjects or academic scholarships for particularly bright students. Check if you might benefit from one. For example, Lancaster University gives £1,000 a year to students on a European language, engineering or biological science degree course.

Bear in mind, however, that sponsorship opportunities tend to be concentrated in areas with skills shortages such as engineering and science subjects.

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Will my employer fund me?

If you know the career you wish to pursue, you may find your future employer is willing to give some funds to help pay for your studies.

For example, those wishing to enter the Army may apply for a £1,000-a-year bursary. These are awarded to around 250 undergraduates every year who are on a three or four-year course and graduates are paid a £3,000 lump sum when they start training at the Royal Military Academy, Sandhurst. Recipients must serve at least three years in the Army or the full amount will have to be repaid.

The Royal Air Force gives undergraduates up to £4,000 a year towards their courses, in return for a minimum of six years' service, while would-be engineers on the Royal Navy Bursary Scheme receive £4,000 a year, with all others on £1,500 a year.

For those who are set on working for a major company in a particular industry, it is worth checking if there are any scholarships or bursaries on offer. Various major employers now offer some funding through university as a way of getting quality candidates into the profession.

For example, Shell offers 12 technical scholarships each worth £2,500 a year for students starting four-year masters' degrees in science or engineering at Leeds or Manchester universities.

Anyone thinking of starting a construction-related degree course this autumn might consider applying for an Inspire Scholarship, which offers a grant of up to £9,000 to support students during their course. There is also a 10-week work placement between the first and second year of university with a suitable employer.

Typically, companies offer undergraduates around £1,500 a year, along with summer placements of varying length, which can pay around £250 a week.

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What about educational trusts and charities?

Depending on your individual circumstances, local area and course requirements, you may be able to find help from a charity. Educational charities and trusts tend to provide more limited help than other aid on offer, in the form of one-off bursaries typically for £500 or less. But these can only be applied for once all other forms of statutory help, by way of student loans and grants, have been exhausted.

The Educational Grants Advisory Service (0207 2546251) provides a free search to see if any of Britain's 1,200 educational trusts will offer financial support, as criteria vary widely.

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Where can I find out more about student finance?

You may apply for loans and the maintenance grant via Student Finance Direct (08456 077577).

Check funding for specific institutions and courses through UCAS.

More information about student finance is available from the Direct.gov website and from the DfES

The Educational Grants Advisory Service (0207 2546251) has information on financial support available from educational trusts.

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What steps can I take to make the most of my cash?

With a bit of money management, cash-strapped students can easily reduce the amount of debt they leave university with:

• Draw up a budget: Make a weekly budget and stick to it from day one. Only withdraw cash once a week to limit the amount you take out.
• Avoid eating out: Even a sandwich and a drink can cost the best part of £5, which would add up to around £1,200 each year.
• Walk or cycle: Public transport is not cheap. If you can, avoid it by walking or cycling to college and you'll soon notice the difference.
• Host dinner parties: Even at student rates, drinking and eating out is often more expensive than getting your mates round for a bring-a-bottle dinner party. This way you may also learn to cook during your course!
• Don't be seduced by gimmicks: Banks will try and lure you with free gifts for opening a student account, but a big interest-free overdraft facility is more useful.
• Shop for food with friends: Buying in bulk is cheaper, and more sociable.
• Use student discounts: Always take an NUS card, and use it for discounts where possible.
• Get a part-time job: This can provide essential extra cash, and you can earn up to £5,225 a year (2007 / 08) without paying tax.
• Make your own coffee: While caffeine may be the only solution to surviving an early lecture, the cost of regular high street lattes adds up. Invest in a funky flask and make your coffee at home.

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How can I get back in the black after graduation?

The average graduate left university in 2005 saddled with £13,500 worth of debt, according to Barclays (source: Barclays Graduate Research, August 2005), a sum that is set to rise to as much as £33,000 by 2010.

Graduates who are lucky enough to secure a job quickly are likely to find the early part of their working life is geared towards paying off debt.

Thankfully, the majority is probably going to be made up of student loans. There is no rush to repay these as the interest rate is set to remain low, as it is linked to inflation, making it the cheapest loan you will ever have.

If this is the only debt you have, it makes more sense to stash any spare cash in a savings account paying a high rate of interest and pay this debt off gradually. However, if you have more expensive debt, make it a priority to pay this off.

Most graduates also have an overdraft to contend with, and find their interest-free limit is reduced once they leave university, or soon after. Try to avoid straying into an unauthorised overdraft, or you risk running up hefty bank charges. If may be worth persuading your parents to give you an interest-free loan by convincing them of the financial logic of this.

Debt on a credit or store card may be subject to an extortionate rate of interest. So this should be wiped out as soon as funds become available, or switched to a credit card with an interest-free period.

There are plenty of credit cards on offer that allow you to transfer the balance from other cards and have interest-free periods for a year or even longer. But watch out for transfer charges.

You still need to make minimum monthly repayments, but at least you are paying off the capital rather than lining the banks' pockets by paying interest.

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15 August 2007 © Moneyextra.com

Our senior editor Robin Amlôt recommends you should consider taking independent financial advice before acting on any article. Please contact us for help with your individual circumstances if any assistance is required.