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Four top tips about student finance

Starting University can be daunting. For most, becoming a University student is the beginning of a new academic challenge and social life. However, with these exciting ventures comes financial responsibility. We asked Jane King and Mary Carey, authors of Personal Finance, to give their top four tips on budgeting and student loans. Please note that these tips refer to student loans taken after September 2012 in the UK only.

What are the top four finance tips every student needs to know?

1: Don’t borrow more money than is entirely necessary

Banks can seem to be very generous in offering interest-free loans to students. Interest-free, or not, overdrafts are still borrowing that will eventually have to be repaid and will not always be interest free. You should aim to keep your debts to a minimum, for day to day living try and live within your budget.

2: Identify all likely expenses and make a budget

A budget is a personal plan of expected income and expenditure. When you receive your maintenance loan at the start of term, you need to know what that should cover. It can be very useful to think of your outgoings as either being fixed expenses or discretionary expenses. An example of a fixed expense is the cost of living in a hall of residence or rented accommodation. The costs of the hall are fixed and you will generally have to pay those fees at the start of each semester.

Image: Piggy Bank, by pfertig. Public domain via Pixabay.
Image: Piggy Bank, by pefertig. Public domain via Pixabay.

After hall fees you will have living costs that you need to meet, such as food, travel and books. You will also want to have money for going out, as social life is an important part of being at University. These are known as discretionary expenses. You could choose to live on beans and tap water to keep your food costs to a minimum, to maximize money available for going out, or vice versa. Either way, it is empowering to know what is in the budget and available for spending on food or socializing.

Having a budget means you can see in advance if your income will cover your expenses for the whole term. A budget gives you the knowledge and understanding of how much you have available to spend after your expenses.

3: View your student debt as an investment in yourself

According to a Report in the Sunday Times in June 2015 the Higher Education Commission reported that students graduating in 2015 will leave with what they described as ‘an eye-watering average debt of £44,000. However, it is useful to think of a student loan as a form of graduate tax rather than entirely as a debt. Taking a degree or other higher education qualification could be considered to be an investment in yourself.

Whether or not your student debt gets repaid will be determined by how much you earn during your working life. If you choose a career where lower salaries are paid, then it is very likely that the debt will not be repaid. The current rules state that 35 years after graduating, any remaining student loans you have, will be written off. In 2014, the Universities Minister let it be known that the Government anticipated that 60% of graduates would end up not fully repaying their debts and having those debts written off after 35 years.

4: View your student loan and debt as a graduate tax

Having significant levels of student debt is rather different to having other types of debt. Student loan repayments are linked to the amount you are earning and not the amount you owe. At present, it is only graduates earning more than £21000 who have to make repayments. They have to repay their loans at the rate of 9% on any amount earned in excess of £21,000. So, if you are earning £26,000 per annum, then you would make repayments based on the 9% rate applied to £5,000 – which would amount to £450 each year. Notice that this amount (the £450) is linked to the amount you earn and would be the same whether your student debt amounted to £10,000 or £50,000.

Repayments are linked to how much you earn – just like income tax. Student loan repayments are collected alongside income tax. Most graduates will be making repayments during the majority of their working lives. So in many respects, making student loan repayments will look and feel more like a tax that graduates have to pay.

Featured image credit: Coins, by Olichel. Public domain via Pixabay.

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