Real life and how to survive it

Banks can help ease the debt burden, says Sam Rich

While you're at university an interest-free overdraft and a couple of student loans can seem like too good an opportunity to miss. Then you graduate and it dawns on you that it wasn't all free money.

Last year, the typical graduate owed about pounds 2,200, but if you left university this year you're probably pounds 3,000 in the red. As student grants are cut year on year, so students' debts are rising accordingly.

Debt is a fact of student life, and all you can do is exercise damage limitation.

The advantage of having most of your debt in student loans is that their cost is linked to the rate of inflation - currently an affordable 3 per cent or so - and they don't have to be paid off until you earn 85% of average national earnings (which presently means earning a salary of pounds 15,792).

If you have finished college this year, remember the Student Loans Company can activate a direct debit from your account from April. If you owe them pounds 3,000, this would mean monthly payments of about pounds 55 over a standard five-year term. They should send you a repayment deferral form in January, so fill it in if you need to.

Most students will have taken advantage of interest-free overdrafts from their bank during their time at college - but these start to dry up when you graduate. If you are with Barclays or NatWest the all-important interest- free overdraft facility expires at the end of December. The other banks will give you until June 1997 or later, with Lloyds providing the most leeway - a pounds 700 free overdraft in the first year after graduation and then a pounds 350 limit in the second. Midland offers the largest interest-free overdraft - pounds 1,250 - but this only lasts for a year.

The big banks all offer graduate banking packages, which may seem a comedown from the student deals, but do at least offer a relatively gentle transition to the horrors of real banking.

The interest rates on overdrafts are generally preferential to the normal rates but not as good as those offered to students, with the exception of Barclays and NatWest which continue to charge their student rates. Midland's authorised overdraft rate is the highest, at 16 per cent; Barclays is the cheapest, at 1 per cent above base rate, or 6.75 per cent currently. However, Barclays' preferential rates only last for a year after graduation; those of NatWest, Lloyds and Midland last up to two years.

The good news is that banks want graduates because of their high "earning potential". If you can convince the bank that you are likely to fulfil that potential, you may be able to negotiate an extension to the interest- free overdraft period. Likewise, banks will be keen to poach the business of graduates from their rivals, so allowing you to transfer to better deals even if you have a sizeable overdraft.

The bad news is that most of this year's newly qualified bright young things will not yet be working in their dream job, if indeed they're working at all. In fact, a recent survey by Barclays shows that they will probably be pushed further into the red in the first six months after graduation.

There are a number of reasons for this. After their finals many students will want to travel, or take time out. In the search for a new job, they may find themselves doing unpaid work experience, and when they get an interview, they'll almost certainly have to fork out for a new suit.

Barclays also found that those following their chosen career owed more than others. The explanation given for this is that if you are secure in your job and decide that you have waited long enough for the high-flying lifestyle you couldn't have at university, you might borrow to fit in with the new set. You'll want a car, a working wardrobe, perhaps a computer or a deposit on a flat.

With the average graduate salary at pounds 12,248, you won't want to borrow too much too soon, but the banks now offer very good rates on graduate loans. These are charged at between 8 and 9 per cent, which is significantly less than the rate on normal loans. In most cases they will also work out cheaper than subsidised authorised overdraft rates.

Getting a better deal on your debts than most people may not be much of a consolation if you are unemployed, of course. But don't despair. The banks have taken on board that students' money problems don't end at graduation - so keep them informed of your progress. Who knows, some of their optimism for your future earning capacity may rub off on your hesitant career.

Interest-free Additional authorised Unauthorised Preferential- rate

overdraft overdraft interest rate overdraft interest rate loans

Barclays pounds 1,000 until 6.7% 17.75% Up to pounds 5,000 for

31 Dec 5 yrs at 2.5%ABR*

Nat West pounds 1,000 until 9.3% 33.8% 8.2%

31 Dec

Midland pounds 1,250 for 16% 24.6% Up to pounds 10,000 for

1 year 5 years at 9%

Lloyds pounds 700 1st yr 14.5% 26.8% Up to pounds 5,000 for

pounds 350 2nd yr 5 years at 8.9%

Halifax pounds 1,000 for 6.2% 11.2%

1 year

*ABR above base rate