Exams are over but the debt test has just begun

With graduates now leaving university owing up to £15,000, Clare Francis looks at bank deals that can make the burden bearable

Graduate debt continues to rise, with those leaving university last summer owing, on average, £10,997 – an increase of 17 per cent on the previous year.

The findings, in Barclays' annual graduate survey, are a stark reminder of how the introduction of student loans, and abolition of grants, have made debt the norm for many university students. But they also illustrate that these debts are rising sharply.

When tuition fees were introduced in 1998, the loan system changed so that students could borrow more to cover the fees. Under the old system, the maximum loan was around £1,800 a year, so the average debt on graduation was much lower than today. Students left university in 2000, the last year before the new loan arrangements came into effect, with debts of £6,507, according to Barclays. But they can now borrow more than twice the old amount, and the level of graduate debt was 44 per cent higher in 2001.

Students in London can borrow up to £4,815 this academic year; those outside the capital can take on up to £3,905. The system is means tested, so not all students will be able to borrow the full amount, but even among those who get help from their parents, many will still have to take out a loan.

The National Union of Students believes that Barclays' graduate debt figure is conservative; the NUS estimates that the average student leaves university with debts of between £13,000 and £15,000. What is more, a spokesman for the NUS says even this masks the full cost of university life.

Attitudes to debt have softened considerably in recent times and there is a lot of support for students – not only to help them cope with the cost of university but in repaying their debts after they have graduated.

In addition to loans, banks offer tailored current accounts to students. These switch to graduate accounts at the end of the university course, but the favourable terms, such as interest-free overdrafts, don't differ considerably and graduates have access to extra products such as special-rate mortgages and graduate loans.

These terms tend to continue for three years, giving time for overdrafts to be repaid, though the exact conditions vary from bank to bank. With NatWest, for example, the maximum interest-free allowance is £2,000 for the first year after graduation, reducing to £1,000 in the second year and £500 in the third.

Alternatively, those who feel they lack the discipline to bring their overdraft down can opt for an interest-free overdraft repayment loan.

Barclays' graduate deal, by contrast, gives students a £200 interest-free overdraft when they open an account. They can then request an interest-free overdraft of up to £1,250 for two years after graduation. Those owing more than that can apply to transfer their overdraft into a loan. This is available up to £3,000, although interest is charged at 8.9 per cent.

All the main high-street banks offer graduate deals. You don't have to have held your student account with that bank to be eligible, so it's worth comparing the various terms on offer to see which is most generous. Another advantage of graduate accounts is that the banks have staff who are specifically trained to help graduates with their financial problems.

Debbie Shipley, head of student banking at Barclays, urges graduates concerned about their finances to speak to their bank rather than hope the problem will just go away.

Rise to the post-university challenge

Calculate all your incomings and outgoings. Remember to include items such as national insurance contributions, income tax and student loan repayments.

Once you know what you'll have left, work out how much spending money you'll need. And be realistic; there's no point in pretending you'll stay in every weekend. Remember, these debts will take a few years to clear, so you'll need a sustainable repayment plan.

If you've got a number of different debts – a student loan, an overdraft and an outstanding balance on a credit card – clear the most expensive first.

Put cash for paying bills into a separate bank account so you won't be tempted to spend it.

Get into the habit of saving regularly – whether it's into a pension or a savings account – even if it's only a small amount. You may think you're earning a lot of money but it won't be long before you're used to living off that sum, and then it becomes harder to make cutbacks in order to save.

You might have debts to pay, but if you don't have a company pension scheme, seek advice about setting up a personal plan. The sooner you start saving for retirement, the better.