Pile of ound coinsWhen that first student loan check arrives the great temptation is to spend it.
Here’s how to budget the cash:

 

English universities charge £6,000 to 9,000 a year, but add it all up , and the average university course costs £10,100 per year according to the NUS. That’s tuition fees of £8, 400, travel of £700, and books and equipment of £,1000.
Then you need to add in living costs at an average of £12,000 per year for rent, food, clothes and entertainment.
So when that first student loan cheque arrives into your son or daughter’s bank account it is as well to have had a talk to them about managing their money, to avoid parental cash calls and a term living on baked beans!

1. Loans & Grants

The costs of studying fall into two categoriesloans-and-grants

  • Tuition fees
  • Living costs

The rules vary between England, Scotland and Wales. Go to UCAS student finance for details.
Universities that charge over £6,000 per year must provide financial support to those on low incomes to ensure they are not deterred from applying. This could take the form of fee discounts or bursaries to help with living costs.
All students are eligible for a loan for their fees. The deadline for applications is just before the end of May – miss the deadline and receipt of the cash could be after the start of term. In England (figures subject to change):

Student Loans, which have to be repaid are:

A. Tuition Fee Loan, to cover fees up to a maximum of £9,000 per year, which is paid direct to the provider of the higher education.

Interest will initially be charged at RPI, which will accrue whilst studying
Graduates then start repaying the loan monthly at the rates below, depending on their earnings. Payments will be at a lower rate than previously, but the repayment period will be longer.
-earning under £21,000, no repayment but interest accrues at RPI
-earning £21,000 – £41,000, the rate gradually rises from RPI to RPI plus 3%.
-earning over £41,000 – RPI plus 3%
The system is designed for pay back over 30 years. After that period any balance is written off. So if a graduate earns a high salary it would be better to pay off the loan sooner rather than later. If they earn a low salary then the likelihood is that they will reach the 30 year limit and the balance will be cancelled.
Apply for a loan via Student Finance England
If you are covering tuition fees without a loan a percentage, usually 50%, needs to be paid upfront before a student can register.

B. Maintenance Loan to cover living costs

Students can apply for a maintenance loan (paid in 3 installments at the beginning of each term) to cover living costs as follows:
-living at home up to £4,375
-living away from home up to £5,500
-for those living in London students can borrow up to £7,675

Student grants which don’t have to be repaid are:

A. Maintenance Grant which is means tested and non repayable:

If annual family income is under £42,611 the maximum grant a student can claim is up to £3,354 per year. It is calculated on a sliding scale, with the maximum available for household where annual earnings are less than £25,000. It is also paid in 3 termly instalments. Also check out other sources of funding  – from bursaries to support for low income households or students with dependants.

B. University Bursary applied for via the Student Loans Company is means tested and can be up to £1200 per year. Some universities will offer additional bursaries.

There is an individual Student Finance Organisation for England , Scotland and Wales. For further details on grants and loans go to www.direct.gov.uk which has a useful student finance calculator to find out what your child is entitled to.

Repayment of a student loan starts in the April after the student finishes their course and once they are earning over £21,000, when 9% of their pay will be taken as a repayment. So if you earn £22,000 the monthly deduction will be £7.50. Even if a person works abroad, regardless for how long, they will still have to repay the loan. They should submit an Overseas Income Assessment Form showing evidence of earnings abroad. The same earnings thresholds apply. For further information click here.

Loan deductions will be made from the salary provided income exceeds the £15,000 threshold. Deductions are 9% of income above that threshold. When repayments start to become due the Student Loans Company itself notifies the Inland Revenue, who then notifies the Employer using the National Insurance Number system. Each year the P60 will show deductions made so that HMRC can then inform Student Loans. If they change jobs their P45 will show that they are a student loan account holder. It is important that the ex-student keeps a note of repayments as the annual Student Loan statements may not be up to date. They can do this on the Student Loans website

Interest is Interest is compound and accrues on student loans from the date each installment is paid until they have been repaid in full. Loans granted on 1 September 2008 accrued interest at 3.8% pa, but rates have subsequently decreased. For the academic year covering 1 September 2009 to 31 August 2010 the rate was zero.

Scottish, Irish and Welsh students will pay significantly lower fees at their own universities (Scottish students may pay nothing in Scotland), but English students will have to pay higher fees of up to £9000 per year if they attend there. So that could be £36,000 for the Scottish 4 year course.

For more information on loans and paying them back click here for Scotland, or for Wales, or Ireland

For those fortunate enough to be able to afford it, private providers such as BPP are focusing on providing the opportunity to do a degree in a shorter time, and with more contact hours. Lets face it – there is plenty of scope for more intensive learning over a shorter period. Most students are at university for under half the year, although they have to pay rent on student houses throughout, so the cost to the student of lengthening the academic year would be proportionately lower. Surely a two year degree course would be feasible for many.

A white paper is going through parliament to enable students to get loans to study at these private firms. 1000 undergraduates already study at BPP (originally known for its accountancy and law training) mostly sponsored by employers. They won’t have a radical impact initially but could become significant over the next few years.

Useful contacts are :
The university’s students union, and student services.
National Association of Student Money Advisors
National Union of Students
Student Loans Company
Student Finance England

2. Setting a Budget

As Push (the independent university guide) explains, students will on average graduate with over £40,000 of debt – a huge debt burden unless they are fortunate enough to have parents who can contribute. According to the National Union of Students average expenditure for students in London was £17,430 and outside London was £16,280 in 2011/12.

In very broad terms, and only as a rough guide, students surveyed reckoned they need about £1,000 per month to get by on, including rent, food and transport. Obviously it’s a ball-park figure and the cost of living will vary around the country, but it gives you an idea of a realistic basic budget that your child should work to.

With loans and grants being paid at the beginning of each term it is essential that new students consider how to manage their money. For most students this will be the first time they have to deal with a lot of money all at one go, so some parental guidance on budgets and outgoings will prove invaluable advice and could save a lot of heart ache on both sides. My advice is to sit down with them and draft up a monthly budget. UCAS has a useful proforma to help figure out a student budget. If they have never lived away from home before, they will have little concept of the cost of living and identifying costs by category will make them realize how much of their money will be swallowed up in necessities, and how much will be left over for socializing.

Help them create a basic list of outgoings in order of necessity, starting with rent, utility bills and food. You will find a helpful student budgeting calculator at student calculator .

If they have never lived away from home before, a student may have little concept of the cost of living,  and identifying costs by category will make them realize how much of their money will be swallowed up in necessities, and how much will be left over for socializing.

Explain the concepts of fixed and non-fixed costs, and the need to monitor what they are spending. It is pointless having drafted a budget if they then never do a reality check between what they budgeted to spend and what they actually spend. It will show them the areas where they are overspending and give them the chance to cut back.

They also need to consider cash flow – as do you if you are funding them. Timings of payments of fees, hall bills, clubs and societies, books and of course “freshers” week need to be factored in along with regular monthly costs. They need to be aware of the high costs of going into overdraft when it is not authorised by the bank – see Money Saving Tips below.

Hidden Costs

You will also need to factor in the “hidden costs” that students have not been made aware of before they start their studies. These include printing, resit fees, specialist software, and course related sports facilities. Many students pay £100-£200 per term on costs associated with their courses. The NUS has tried to get assurances from universities that “all applicants and students deserve clear and accurate information about any additional costs that they will incur …” , but this is subject to interpretation ! So, if the course involves art, design, fashion, medicine etc I suggest that any prospective student make extensive enquiries into “hidden costs”.

They also need to consider cash flow – as do you if you are funding them. Timings of payments of fees, hall bills, clubs and societies, books and of course “freshers” week need to be factored in along with regular monthly costs. They need to be aware of the high costs of going into overdraft when it is not authorised by the bank – see Money Saving Tips below.

Ensure they set up on-line banking so they can check their account balance at any time. Its a good idea to set up a deposit account into which grants and loans are paid, with a standing order to drip feed monthly installments into their current account. Too many students blow their grants in the first few weeks of university.

Avoid credit cards unless absolutely necessary. They can always access cash from a current account. Debts are so easily run up on a credit card, and students often do not realize the punative charges levied on accruing balances. Warn them too against all the unsolicited credit cards offered by post. .

And finally! if you are supplementing their grants, you need to decide the timing of your payments. Monthly funding generally works best on both sides, and unless your son/daughter has an unnatural degree of budgetary control termly payments are best avoided, or you stand a high chance of being faced with a very broke student halfway through. If their budgetary control is hopeless, then fund by weekly direct debit. It may seem a drag, but you won’t be the only parent who has had to resort to this to save their child blowing a term’s money in half the time.

3. Money Saving Tips

Shop around for a student bank account. Don’t let them get carried away by up front perks and freebies. Check interest rates for authorized and unauthorized overdrafts – the latter can be three times the former, so if your son/daughter is going to need an overdraft, a large interest free, no-charges feature is much better than a free student railcard. For example – an interest free overdraft of £1,000 could save £100 per year at 10% interest. An account offering lots of freebies could be charging £10 for going 50p overdrawn! At the moment Halifax and HSBC offer new students a £3,000 interest free overdraft facility for the whole three years.

Shop around for Broadband. If you live off campus then you’ll need to think about your home broadband, and Switch is a good place to start. Students often don’t use landlines, as there are some good broadband only deals available that won’t break the bank, and make sure they don’t pay for hidden costs like set-up or installation fees. Keep an eye out for student specific packages that are promoted around August/September and are based on 9 month contracts, meaning they won’t be paying for broadband that they don’t use during the summer holidays. And remember, a lot of students in a house will mean that rapid download speeds are essential.

Food on a budget. Simple, cheap food can often be found outside of supermarkets. Fruit and veg markets, local butchers who will sell you exactly what you want rather than having to buy an “economy pack’ ( which isn’t economical if you waste it). Encourage them to buy what is in season, and to make a list so that they plan meals and don’t impulse buy. Click here for a helpful article and some great student recipes.

Unauthorised overdrafts. Penalties even for tiny overdrafts can be very high. Alliance & Leicester (owned by Santander) charged a 20 year old £80 for an unauthorized 15p overdraft – a £25 penalty and then further charges as he withdrew more money in the following week before he realized he was overdrawn. Look for an account that offers a buffer before charging for overdrafts – some banks allow an overdraft of between £100 and £200 before charging. Other banks will text a warning when the account balance drops to a trigger point. HSBC and Halifax currently offer a £3,000 interest free overdraft. HSBC offers a very competitive “additional overdraft” charged at 3% over base.

Occasionally or permanently overdrawn? Check with a site like Moneysupermarket.com as charges vary widely – The Halifax is currently cheap for occasional overdrafts but amongst the most expensive for permanent overdrafts.

Long term borrowing. Many banks will offer an incremental increase in interest free loans each year, but beware any charges that might creep in and watch out for aggressive marketing. Given that students often have problems with budgeting it may be preferable to choose a bank that offers a low overdraft in year one, then increases it in years two and three so they don’t have immediate access to large funds.

No over draft needed? Then go for the freebies, but just beware of the ones that are really of little practical value. Nat West is currently the best bank for freebies and the most popular for students– a five year young persons railcard plus discounts on broadband and laptops.

Lucky enough to have savings? Then suggest they don’t leave their money in an ordinary current accounts as they pay zero or miniscule interest. Look for an instant on-line access account that pays a decent interest rate.

Council Tax rules are that each student must tell their local council that they are a student, sending in a copy of their confirmation of a place. If they live in hall or in a house with a group of students they will get an exemption.

Income Tax. Students can earn up to £10,000 before being taxed in the year 2014/15, so tax rebates may be due.

TV licence. Students must have a licence if they have a TV or watch TV on a laptop, but can claim a repayment of £37 for the summer months when they are at home.

Insurance. Students are not covered under their parents’ household policy. Endsleigh Insurance, the main insurer for students, estimates that a student takes £2-5,000 of possessions to university, so do encourage them to get insurance before they leave home. For high value items they should keep a note of makes, models and serial numbers to speed up any claims. Insurance is really important if moving to a student house. Landlords may not change the locks, and thieves will know the houses easiest to burgle – new students are prime targets. Any of the comparison websites like confused.com or moneysupermarket.com are a good start for quotes.

Buy a 16-25 railcard. This will save them a third off all train fares and on oyster card travel. A one year card costs £30 or a 3 year card costs £70.

Don’t buy everything on the reading list. Sharing text books will save money, some of them will be available in the library, and there are always students wanting to sell their books. Try Amazon’s marketplace or green metropolis.

Beware fines for breaking rules. Some halls now impose heavy fines on students who leave their rooms in a mess, don’t clean communal kitchens, smoke in their rooms or play their music too load etc. Given that these are all things that students do on a regular basis a word of warning wont go amiss, otherwise your careful budgetting could be frustratingly blown. Halls are starting to realise that fines are a good source of income!

Get a cheap mobile deal. Text traffic will rise exponentially once at university, and with so much lecture and tutor communication now done by email a smart phone is a necessity. Which has started a mobile phone comparison site covering thousands of tariffs offered by all the main operators. SIM only deals are available for as little as £5 a month. O2 offer students 30% off new handsets.

MP3’s. Encourage students to shop around for music downloads as prices vary hugely. The site tunechecker.com compares the prices of singles and album from all the main suppliers, and particularly on current top albums you will find savings of up to 40%.

Save money by using vouchers. Try My Voucher Codes ,  VoucherCodes.co.uk  or LoveMy Vouchers when buying clothes, household goods, stationery, books etc. They offer retailer discount vouchers and “2 for 1” restaurant deals.

Use Shop Freecycle. Need new furniture, kitchen equipment or a sofa? Sites such as Freecycle and Freegle are an excellent source of local second hand items, provided you can collect them.

Use cash back sites If buying online these click through revenue systems can offer up to 10% of the shopping cost back in cash. Try sites such as :

www.quidco.com
www.cashback.co.uk
www.topcashback.co.uk
www.studentbeans.com

4. Renting a House

By the end of their first term students will have had to decide with whom they want to rent a house in their second year. renting-a-house Most universities have an accommodation office and will offer legal advice and a free contract checking service.

Most private landlord tenancies are assured shorthold tenancies. Students taking individual rooms and paying individually an agreed monthly rent will almost certainly be asked to sign a single tenancy agreement in respect of which they are each jointly and severally responsible. In the excitement of finding a suitable house they may not appreciate that they are each liable for the rent of the whole property in the event that one of their number defaults.

As a parent you will probably be asked to be a guarantor of the tenancy agreement. You should be aware that if, as is likely, it is a joint tenancy you may be guaranteeing the rent for the whole of the property for the whole of the term of the contract.

A prudent parent should amend the form of guarantee to define only the part of the rental that their child is liable for, and to guarantee only that portion. Most landlords are happy to accept this.

Invariably on agreeing to take the house students will have to pay an agency fee as well as two months rent – one month as rent in advance and one month as a security deposit.

If the rent for the property is under £25,000 pa (remember that as a joint tenancy all the individual student rents will be aggregated) then students should be notified by the landlord within 14 days as to where the deposit has been placed in accordance with the provisions of the Tenancy Deposit Protection Scheme

For tenancies taken out or renewed after Oct 1st 2010 the rent threshold is increased to £100,000. This will catch many more student lets after 2011, so these landlords too will now have to place rent deposits into a recognized tenancy deposit scheme.

Encourage your son or daughter to request an inventory of contents and to note any damage to, or poor state of, furnishings, carpets, furniture, walls etc when they move in. The inventory, with annotated comments written where appropriate, should be signed by the landlord and the students and dated.

Photographs which are digitally dated are useful evidence. It is notoriously difficult to get a deposit back, so sending a set of photos in with the deposit, and then providing a set at the end too – assuming the condition is still good- can be the only way of getting a deposit repaid.

Landlords may insist that students rent for 12 months from July, in which case it is worth checking that the house is not undergoing works in the summer. If works are planned they should get details of them in writing, with a completion date. If it is uninhabitable rent cannot be charged. Students can try negotiating for a reduced rent in the summer months when they are not there, but in reality good houses are hard to get and the landlord knows he is in a strong position.

And finally there is an increasing trend for landlords to ask for post dated cheques to be left with the agent to cover rent in advance. This avoids the need for a tenancy deposit (see above) and is a legal alternative. Try to negotiate for the agent to hold only say 3 cheques in advance at the start of the tenancy, one being the deposit. As a tenant cannot then legitimately stop the cheques, he will have difficulty getting any reductions where the landlord has breached the terms of the tenancy.