BORROWING

For the majority of students, borrowing is an inevitable part of funding university/college. The many costs to consider when entering higher education include books, transport, accommodation, living expenses, tuition fees, and socialising. It is important to accept the money is going to come from borrowing or sometimes from parents. You should not be put off by potential student debt – if you borrow in the correct way, it’s very different to normal debt. It’s only repaid when you finish studying and you only start repaying when you reach a certain salary. All types of debt are not the same. For students, it can be said there are right and wrong ways to borrow.

The first type of borrowing to be considered is official student loans. Your official, government-backed, student loans company are the cheapest long-term debt you will find (between 4% and 5% interest rate usually). The interest rate you pay on these is lower than the interest you can receive in a high interest savings account in the bank. It may be an idea to apply for a loan for the purpose of gaining interest on it by transferring all the money into a bank account. Note that different countries offer different types of student loans – for example the US such loans as perkins, subsidized/unsubsidized staffords, parent plus, etc. are available. Contact your relevant institution to find out more.

Secondly, student bank accounts with interest free overdrafts are the next acceptable type of borrowing. Large banks are desperate for students’ custom (they see them as potential high earners that will stick with them for life) and thus offer interest free overdrafts and other rewards to draw them in. Normally, there are expensive interest rates for overdrafts, but for students it is free up to a certain limit. However, be aware that once you a no longer a student the bank will start charging you a high commercial rate of interest on your overdraft.

Lastly, the remaining types of debt are everything else available – and should be avoided at all costs. This consists of anything charging a commercial rate of interest (say, over 5% for example) such as credit cards and bank loans. If you are using credit to spend but do not have an income you won’t be able to repay the debt. This will result in the interest compounding and will build quickly, leaving you owing a serious amount of money. In the highly competitive market, there are many tempting introductory offers available for credit cards so try to see the bigger picture and resist. Store cards, issued by high street retailers, are an expensive way to borrow. Where annual percentage rates of up to 30% are commonplace, store cards can leave you in a large amount of unnecessary debt.

It is useful to note that there can be grants or scholarships available if you know where to look. Students suffering financial hardships can often qualify for bursaries which do not have to be repaid. In other words, if you parents have very low incomes you may be provided with money you do not have to repay. Contact your university or college in respect of this to find out more information – all colleges and universities have different schemes. Another source of finance to look into is scholarships – they are usually available for the likes of academia, sports, and sometimes hobbies. Again, all universities are different so contact your university to find out more.

To see our section on coping with debt and getting out of debt check our Debt Management page.