Student MoneySaving Funding, borrowing & living 2011/12

Student life is packed with MoneySaving opportunities and pitfalls. Borrow right (and cheaply), budgeting properly, understanding myriad fees and nabbing ALL discounts are crucial to making it out in one piece.

This is a one stop shop to EVERYTHING you need to get through uni without a serious debt hangover, including the full lowdown on loans, tuition fees, overdrafts, grants, and even how to party the Moneysaving way! Plus, it's worth saying now...

The changes in 2012 WON'T affect you, you'll stay on this system during your studies.

Looking to go to uni in 2012? See the Students 2012 guide.

The costs of starting higher education are prolific; books, transport, living expenses and of course socialising. That's as well as tuition fees, where you pay for the cost of studying: possibly up to �3,375 a year.

This potential debt shouldn't put anyone off studying. Done right, it's very different to normal debt: it's only repaid when you finish studying, and if you don't earn enough when you leave you don't have to pay for it (though of course one reason for studying is to enable you to earn more)!

Ensure you're up to date

When living as a student it's important to keep on top of your finances. Ensure you get the free weekly Money Tips Email which includes crucial alerts about short-lived ways to beat the system and put cash in your pocket. Plus you can join scores of students chatting in the Forum's Student MoneySaving section.

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The right type of borrowing

Sadly in the UK, students are educated into debt but never about debt. Many in authority bluntly and ignorantly concentrate on telling students to avoid debt, which is impossible, rather than focusing on avoiding bad debt. See the full Financial Education Campaign section for lots more info.

One consequence of tarring all debt with the 'boo hiss' brush is that when students borrow, many don't delineate between the best type of borrowing - student loans - and the rest, leaving them mired in bad debts. This means they start their working life damaged by financial problems and already swept into the debt culture. So let's start by saying:

'All debts are not the same!
Some types of debt are MUCH better than others.'

Where to borrow first

Once you accept all debts aren't equal, the key question is which are the right debts? For 2011 starters it's easy to draw up a strict order of priority:

Good Debts: Official student loans The official Government-backed Student Loans Company (SLC) loans are the cheapest long term debt you'll ever get (currently 1.5%) and should always be the first place of borrowing. You're given two loans: one to cover tuition fees and the other for maintenance (ie, a living allowance). You don't repay a penny until after graduation or you leave, and then the less you earn the less you have to repay. The amount you can borrow depends on location and earnings - full details in the Student Loans section below.

Amber Debts: Student bank account interest-free overdrafts Big high street banks are desperate for students' custom (they hope it means potential high earners will stick with them for life) thus dole out interest-free overdrafts as shiny incentives. An overdraft means you can spend more money than there is in your account (i.e. you borrow it). Normally it's expensive, but for students it's usually 0% up to a set limit. In other words you don't pay to borrow this money. As it's interest free, and the SLC charges interest, you may ask why this isn't the first port of call. The answer is that once you're no longer a student the banks will start charging an expensive commercial rate of interest, whereas student loan debt always remains cheap. To find the right student bank account (even if you're already a student, as you can switch and gain) read the Student Bank Account guide.

Bad Debts: Everything else Pretty much any other debt out there is to be avoided. Anything charging a commercial rate of interest (as a rough rule of thumb above 6%) is a big no-no, such as credit cards and bank loans. After all, if you don't have an income, you can't repay the debts which means the interest will compound and build quickly, leaving you owing serious cash.

Student Loans: the lowdown

Student loans are the official loans organised by the Government through the Student Loans Company (SLC). Don't confuse them with costly personal loans, Career Development Loans, professional studies loans, or loans for students from your bank. There are two kinds:

The Tuition Fees Loan

In 2011/12 the maximum a university can charge for tuition is �3,375, and you can take out a loan to cover the full amount (Scottish students studying in Scotland get this automatically paid, without the need to repay). This will usually be paid directly to the university/college so you don't have to give it a second thought... and so you can't spend it!

The Maintenance Loan

A loan for living costs is available to every full-time student under the age of 60. It's paid to you in three instalments at the start of each term.

NB In Scotland... The loans only for 50s, (or 54 if you're planning to work after the course) and it's paid on a monthly basis.

The amount you get is split into two parts.

• The Guaranteed Bit. Everyone gets this, regardless. It's up to 75% (72% in England, significantly less in Scotland) of the total loan available.

• The Income Assessed Bit. The amount you can borrow is means tested, in other words it depends on you or your parents' residual income (ie, pre-tax income minus pensions). Read Is it my income or my parents'?

  For 2011/12, in England, if residual income is under �50,020 (around �20,000 in Scotland, and �40,000 in Wales or Northern Ireland) you get the full income assessed loan.

  If it's higher, the income assessed bit of the loan decreases, until income reaches �57,708 in England, around �58,000 in Scotland, �50,000 in Wales and �56,000 in Northern Ireland when you don't get anything on top of the guaranteed lump.

  The idea behind this is if income is higher, then you or your parents are expected to fill this financing gap.

The table below shows the amount you can expect to get, although the loan amounts are lower in your final year of study as living costs for the summer months aren't covered.

Always take the maximum loan

You may find this a rather odd statement, but you should always borrow the maximum student loan every year, even if you don't need it. There are two reasons for this.

• You may need to borrow more later.

  While you mightn't need all the loan this year, you may need it in a later year. Don't take it while it's available and you lose your chance, meaning you'll need a worse type of borrowing later.

• You can make money from it.

  This is very cheap debt; in fact it's so cheap, if you were to borrow it and save it in a Top Savings Account, as these pay more interest than the loan costs, you'd make a profit.

  Importantly it means that as the loan is making you money, there's no problem holding on to it, so you're effectively keeping the facility open for cheap borrowing after graduation if you need it (for more see 'Should I Repay My Student Loan?' guide).

There is a slight chance that if you claim benefits due to being out of work when graduating, having a large amount of savings (�6,000 plus) can hit that � and paying off the debts at that point to avoid the rules isn't allowed. So if that�s likely to happen you may want to lower the amount you owe before hand.

This doesn't mean spend it!

Let me clear up any confusion here. What I'm not saying is always take out the entire loan and spend it. Never spend more than you need. What I am saying is take out the loan and then put the money you haven't planned to spend aside (in a Top Savings Account) and that way you won't spend it, but will have a cheap borrowing facility on tap if needed.

How much does the student loan cost?

The interest rate on student loans is usually set at March's inflation rate - specifically based on March's Retail Prices Index (RPI) - subject to a few clauses. In many ways that's all you need to know (so feel free to skip this bit), but if you have time it's worth understanding exactly what this means.

An interest rate is the cost of borrowing. This is a crucial concept in student life and beyond. If you don't understand it, please take five minutes to read the Interest Rates: Beginners' Guide.

Borrow �1,000 at a 15% annual interest rate and at the end of the year you'll owe �1,150. Yet the real danger is interest compounding; in other words borrow over a long period and you pay interest on the interest, on the interest. This means what you owe rapidly accelerates - with �1,000 borrowed at 15%, you'll owe �4,000 after ten years.

How to repay the loan

From the April after you leave university you start to repay 9% of anything earned above �15,000 a year. It comes straight from your employer's payroll, just the same as income tax, and continues until the loan is paid off. For example, earn �16,000 and you pay 9% of �1,000; �90 for the year.

Then, from April 2012 this threshold is set to be uprated (increased) with the RPI measure of inflation until 2016. The actual figure used will be the rate of RPI in the March from the prior year, so on 6 April 2012 it will rise to �15,795, as this March�s inflation was 5.3%. This means that by 2015 when the main crop of 2011 starters start to repay their loans it will be around �17,000.

In truth you needn't worry about this right now - all you need to know is it's a cheap loan that shouldn't impact your financial future too heavily. However, if you really want to read about the future there's a full guide on Repaying Student Loans, or read the basics below:

Grants & Scholarships

On top of the official financial support, other funding sources are also available if you know where to look. All students are potentially eligible for help to cover tuition fees via a Maintenance Grant, Assembly Learning Grant or Students Outside Scotland Bursary, worth up to �5,000 a year. The difference between a grant and a loan is you don't have to repay a grant (HOORAH!).

The amount you get depends on a household income means test, and varies widely between which home country you live in. Click below to see the thresholds.

Other grants

If your tuition fees are the full �3,375 and you're eligible for an entire Maintenance Grant, your uni will have to give you a �338 bursary on top (which doesn't have to be repaid). Yet it's possible to get more; the average pay-out is around �900! Students suffering financial hardship may also get funds; there is no single definition for 'hardship' so if you feel you need it, apply!

Also try the university's welfare department; student parents, those with disabilities, or in other special circumstances may receive extra cash. If that fails, try the Students' Union, which may have its own independent hardship fund and be able to help out.

Find scholarships

Whether you're short of cash or not, there are bags of scholarships for academia, sports, hobbies or even just for being the child of an airline pilot. There are some very bizarre ones out there - check!

Use the Scholarship Search website or go to a local library for a wider range of grant directories. The Educational Grants Advisory Service also offers info on funding, including educational trust funds. Further grant giving ideas are listed in the Education Grants & Courses guide.

How to stay out of money trouble

Student life isn't so different to 'normal life'. There's a set amount of money coming in, and that's what you've got to spend. Yet while for most adults the mantra is 'don't spend more than you earn', for students it's 'don't spend more than you've got' as much of the cash is borrowed anyway.

As a rule of thumb aim to live off the official student loan, any money from parents, and some, but not all, of the 0% overdraft from the bank (it's 0% now, but it'll need repaying later, and possibly at a commercial rate of interest). Read the Money Makeover guide to make sure you're squeezing the most out of all your money products.

Spend more than you've got, and you'll build up more debts, and as you're a student if you've exhausted all the right debts, the alternative borrowing isn't good at all!

There are a number of basic steps to ensure you don't get into money trouble:

• Remember a company's job is to make money from you!

  This isn't a trite statement, it's crucially important. As a student you're effectively entering the adult financial world for the first time. It's too easy to believe companies' promises and marketing.

  Always remember 'they want my cash' and look with a sceptical eye; you'll make better decisions. Do your research. It's easy to assume mobile phones, supermarkets, gym membership, TVs, gas & electricity bills, car and home insurance and other prices don't vary too much - but they do.

  Making the right financial decisions can literally keep �1,000s in your pocket a year. Most importantly, ensure you're getting the free Weekly Money Tips Email so you don't miss out.

• Cut all bills as low as you can

  This site is dedicated to helping you do that; the MoneySaving guides apply just as much to students as anyone else. Crucially never automatically believe 'student specials' are best for you, always compare them to the best mainstream product.

  Try cutting any of the following that you pay out for: Car Insurance for Young Drivers, Supermarket Shopping, Home Insurance, Gas and Electricity, Home Phones, Broadband, Mobile Phone Contract, Water Bills, and check you're in the right Council Tax band.

• Budget! Don't spend more than...

  Everyone needs to budget, by planning their spending. It's never more true than when you're a student. Doing this keeps you in control of your expenditure and ensures you're not left without cash.
  
  Yet there�s a problem; while in the working world the rule is simple �don�t spend more than you earn� � what shouldn�t students �spend more than�?. Without defining that, saying do a budget is irrelevant. As a rule of thumb, add up A. Their student loan, B. Any grants or bursaries, C. Any money earned by working, and D. Any money given by parents.
  
  The total of that is their income and they shouldn�t go beyond it. Yet moving away from home to study is often the first time that young people will have to properly budget for themselves. Help your child start as they mean to go on and sit them down, work out what is going in and out before they even pack to go to university, helping them to allocate their cash. For full details use the free Budget Planner tool.

• Use my Money Mantras.

  There are two easy money mantras, one for when you're skint and one for when you're not. Before you spend money on anything ask yourself these three questions.

• Partying costs.

  For many students, partying is part of the lifestyle. There's nothing wrong with spending on partying, just ensure you budget for it, like everything else in life.

  And remember if you get excessively drunk, it's not just your potential health and self-respect that's at risk, your judgement of what's reasonable spending disappears too - leaving you to wake up with a hangover and depression that you've blown a week's budget (see Drinkaware). So plan when you're going out and when you're staying in, no-one can afford (financially or physically) to party every night, so don't feel pressured into doing it.

  And if you come across drugs, beware, they're hideously expensive, and terribly damaging to a student's finances, never mind the potential legal, lifestyle, medical and psychological dangers (see Talktofrank).

• Don't get the 'spend it before it goes' bug.

  When the loan cash arrives, it's all too easy to celebrate with a big blow-out. Of course we all want a splurge, but the time to do it is at the end of term, when you've carefully managed your money and know you've got some spare, not the beginning, leaving you short and struggling for months.

• Use your student card and ask for discounts.

  Many places will give you a discount if you flash your student (or NUS) card, which costs around a tenner. Yet even if they don't offer it why not ask for one? Many places will help you out if you haggle. It's chutzpah time. Never buy without a try.

• Get a job.

  While studying is a priority, it's become commonly accepted now that many students will work so if you don't have enough cash, don't over borrow, try to find a job instead. The earlier you try to get work in the year (try and arrive before other students) the better your chances.

A final note: students DO pay tax!

Sorry students, you aren't special, you pay tax just like anyone else. The reason many people assume student life is tax free is that no one pays tax on the first �7,475 of income earned each year, and as many students don't earn that, they never pay tax.

However there is one piece of good news; neither the Student Loan nor the Maintenance Grant count as income, therefore they're untaxed.

If you earn less than �7,475 and only work during the holidays, ask your employer for a P38(S) form (or you can download it directly from HMRC) and you'll be paid tax-free. If you work throughout the year, then you need to pay tax as you earn. If you earn under the threshold, contact your local tax office to reclaim any overpaid tax at the end of the tax year (5 April).

Also, if you do save, make sure you use your tax-free Individual Savings Account (ISA) allowance to minimise the amount of tax you pay on savings (see the Best Cash ISA guide for the top paying accounts). You may ask 'if I don't pay tax, why bother with an ISA?'. The answer's simple, you mightn't pay tax now, but probably will once you start working.

You're allowed to save �5,340 in a cash ISA each tax year so by putting it in there now, you're protecting the cash from being tax-deductable in the future.

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