Beware of the Campus Cash Trap

Article excerpt

As university beckons for thousands of young people, managing finances away from home for the first time is their next hurdle. Local education authority grants are a memory and students are now asked to hand over a cheque for up to pounds 1,100 in tuition fees as they arrive to register for their course.

Most will have to borrow money to make it through their years of studying; the average student walks away with a degree and pounds 12,000 of debt.

The maximum loan for students in England and Wales this academic year will be pounds 3,905 if living away from home outside London, or pounds 4,815 if away from home and living in London. Those living at home will get up to pounds 3,090. All are guaranteed at least 75 per cent of these amounts. Their family's financial situation will determine how much more they will get.

Louise Williams, head of student banking at Lloyds TSB, says: "For many, this will be the first time they have had to budget for themselves. It is very tempting to see only the short-term spending capability and get carried away, but you have to make the money last all term."

Accommodation alone can cost pounds 2,686 a year, the National Union of Students (NUS) says. This rises to pounds 3,433 for those studying in London. Books can cost up to pounds 252 a year, a year's food can amount to pounds 1,067 and beer can cost pounds 796. Or more.

Student loans have to be paid into a bank account, so it may be a good idea to open one before term starts. The big high street banks will be lining up to entice the next generation's high earners on their books. Most big banks have dedicated student advisers in branches near universities. Each have a special student package, usually based around a current account. Additional services such as cheap travel insurance are often thrown in.

HSBC, for example, offers students the choice of either a free four-year railcard - which costs pounds 72 - or pounds 50 cash. NatWest has a free "student starter kit", consisting of a kettle, toaster and radio alarm clock, and Lloyds TSB will give you a pounds 19, three-year National Express card, plus travel vouchers.

Most of the big banks offer a substantial interest-free overdraft facility, which for many students is the most important factor. In some cases the interest-free limit is the same for each year, with others it rises each year for the duration of the course. Lloyds TSB offers one of the biggest interest-free overdrafts, particularly for students on longer courses, with a pounds 1,500 limit in years one to three, rising to pounds 2,000 in years four and five. With HSBC you can have an interest-free overdraft in your first year of pounds 1,000. This goes up to pounds 1,250 in the second year and pounds 1,500 in your third year. At Barclays the interest-free limit is a maximum pounds 1,250.

For borrowing above the interest-free overdraft limit, rates can vary widely. With NatWest, any agreed overdraft above the limit will also be interest-free. Others with low rates include HSBC which charges 1 per cent above the base rate, which is 4 per cent. …