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Student Borrowing FAQ
Borrowing money in order to get through studies is becoming more and more common. Here are the questions we are most frequently asked in relation to student borrowing.
Q: Will I definitely have to borrow even if I work part-time during my studies?
A: Because of the need to pay for tuition fees as well as living expenses while at university, using student loans to fund studies has become a fact of life for students. So much so, that the average debt on leaving uni totalls £12,000, up from just £3,300 in 1999 (when tuition fees were lower and grants were available to subsidise the costs).
Fortunately student loans are the cheapest way you can borrow money (other than money borrowed from friends or family). You will pay back far less on a student loan than you would if you were to borrow the same amount from a high street bank. So, you may find that you do need to borrow via a student loan to finance your studies, but don't need to borrow from a bank. You may also find that you earn enough from a part time job to ensure you borrow much less than the student loan limit each year (ie enough to see you through and pay all your expenses)
Q: Is the student loan scheme cheaper than borrowing from other sources?
A: Interest added to your student loan is pegged to the retail price index (RPI) and is the cheapest way to borrow. as the interest rate is linked to the rate of inflation. The interest rate from 1st September 2005 to 31st August 2006 will be 3.2%. Interest accrues from the day you receive the first instalment of your loan.
Q: How much can I borrow using the student loan scheme?
A: This depends on where you live and your household income.
Students living in London away from home can get a loan of up to £4,815 per year of study. Students living away from home outside London can get up to £3,905, while those who stay at home during their studies can receive a maximum of £3,090. Your Local Education Authority will means test your application and your maximum loan amount could decease by as much as 25% should the household income be deemed as too high.
Q: As a student, what types of borrowing should I avoid or be wary of?
A: The expensive forms of borrowing with high interest. These include store cards (with annual percentage rate of up to 30%) and credit cards. The latter have less expensive interest rates and offer tempting incentives, such as 0% interest for the first six months. However, be wary, as the APR will shoot up once the six months is up.
Q: Where else can I source funding for my studies and time away?
A: Most high street banks offer students free overdrafts of £1,500 or more. However, it is important to find out how long this preferential treatment lasts. How long after you graduate will they need the overdraft paying off and when will it lose it's interest-free benefits?
Q: What do I do if I find myself in financial difficulties?
A: Many students find themselves in this position, so your student union welfare officer will be equipped to deal with debt issues. You may be able to apply for a hardship fund. The crucial thing to do is speak up and get help. Tell your creditors you are struggling and they will help restructure your payments so you can afford them. There are various debt solutions available to help you to clear your debts, should you reach crisis point.
Student Debt
Student Debt: Tips To Avoid Student Debt
Student Debt: Student Debt Rises To £14bn in UK
Student Debt: Student Borrowing FAQ
Student Debt: Students and Credit
Student Debt: What It Costs To Be a Student
Student Debt: Specialist Advice Organisations for Students
Student Debt: Student Debt Case Study
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