A crash course in debt

The average student will end up owing pounds 3,000 by graduation time. Frances Way finds the causes of the problem, and suggests ways to stay solvent while you study

"The happiest years of your life" is a cliche that is no longer easily applicable to student life. With 94 per cent of final-year students in debt, according to a survey for Midland Bank last month, those years have become clouded by financial worries.

As A-level results envelopes thud on to countless doormats this week, a new crop of college students will be eagerly looking ahead to university life.

They may be in for a nasty surprise. The Midland survey found that more than half of all students in their final year are more than pounds 3,000 in debt. Only 1 per cent of sixth-formers expect to incur that level of indebtedness; 40 per cent think they will avoid any debt at all.

More than ever before, a degree of foresight and realistic planning is necessary to keep on top of financial concerns and to leave students free to worry about more traditional concerns - hangovers, parties, relationships, the meaning of life, who nicked your milk from the shared fridge and, for some at least, exams.

The problem is that the cocktail of grants and loans from the Student Loan Company does not meet most students' expenditure.

Experience shows that students are left with an average shortfall of between pounds 1,000 to pounds 2,000 a year. Students in their final year are at a greater disadvantage than others, as the loan is reduced on the assumption that the student will be starting work after graduating and will not need the loan during the summer vacation. The grant is means-tested according to criteria which many parents consider to be unfair. Parents are expected to contribute to their children's allowance once the parental income exceeds pounds 16,050.

A parent earning pounds 30,000 is expected to provide the child with pounds 1,418 a year. Many students find it rather galling to be classed as a "child", and to be dependent on their parents. Many receive less than the full parental contribution, or nothing at all.

Two issues face students who are trying to make ends meet. The first is how to survive the course. (The NUS claims that 27 per cent of students consider dropping out of their courses because of financial difficulties.) The second is how to pay back the debt after graduating.

Among NatWest's "Top 10 Tips for Survival" are: never shop for food on an empty stomach; don't buy everything on your book/equipment list, and don't join lots of societies. Doesn't sound like much fun. So, what is to be done?

Most banks have student advisers who will help students to draw up a budget. This budget needs to cover the entire academic year. If you know that you will have a serious shortfall by the summer term, you can get on with planning a vacation job now or find work during term-time. As all the best vacation jobs are snapped up pretty quickly, it is a good idea to start planning early to avoid packing frozen peas.

The grant is paid each term, but students can choose to take their loans either in one lump sum or in three instalments. Instalment payments remove the temptation of going over budget. If you are receiving parental support, you could arrange for this, too, to be paid in instalments.

The loan is a good means of borrowing, as the interest element is designed only to keep the debt in line with inflation. Loans can be applied for only once in each academic year.

If you apply for less than the maximum loan available, you cannot ask for the rest later.

Different deals are available from banks and building societies, and it is well worth carefully scrutinising what is on offer. Nowadays it is no longer a case of choosing your bank according to whether you'd like pounds 20 cash or a record token as your carrot.

Assess your needs according to your financial resources and your chosen course. Many banks have special terms for those studying medicine or architecture, or courses requiring further professional qualifications, such as law.

Another question to think about is whether to try to find part-time work to help make ends meet. Around 32 per cent of students now have term- time jobs, working, on average, 12 hours a week for pounds 4 an hour. Finalists are more likely to have term-time jobs than first- or second-year students, despite having exams looming.

Peter O'Neill, of the joint NUS/USI office in Northern Ireland, said: "There is a serious question of quality standards being maintained when so many students are having to work, particularly if they are working late and have tutorials and lectures to attend early in the morning."

Most universities advise students to avoid working more than 10 hours a week, so that their studies are not affected. If possible, late hours should be avoided. Many "plum" jobs are filled by word of mouth, so tell as many people as possible that you are looking for work.

Other sources of finance may be to seek sponsorship from a charity or other organisation. Sponsorship for Students (CRAC, pounds 7.95) contains useful information. If things become really bad you could apply to your university's Access Fund, which is able to provide payments in cases of hardship.

However, taking an optimistic view, on leaving university most people will have a degree as well as a debt. The Student Loans Company requires repayment beginning the April after you leave university, but payments may be deferred if you are earning less than 85 per cent of the national average income. The banks have their own rules for repayment but they offer some form of breathing space between leaving university and starting to pay off the debt.

Despite the difficulties and hardships, higher education is something to be prized. Financial difficulties should be kept in perspective and student years should be ones to enjoy and profit from - eventually.

Maximum available for 1996/97

Grants Loans Total

London pounds 2,105 pounds 2,035 pounds 4,140

Elsewhere pounds 1,710 pounds 1,645 pounds 3,355

Living with

parents pounds 1,400 pounds 1,260 pounds 2,660

Maximum interest-free overdraft limits

Academic year Midland Lloyds Barclays* Natwest

1 750 500 750 1,000

2 1,000 750 750 1,000

3 1,250 1,000 1,000 1,000

4 1,500 1,500 1,000 1,000

*currently being revised.