Guide to student finance
Being a student is a seriously expensive business these days. Not only do you have to find the money for tuition fees, but other costs such as accommodation, books and general living expenses can soon mount up to a huge sum.
A typical three-year degree course could cost you £31,260 today (or £48,755 for a baby born today), according to Fidelity Investments. And that's just for a bog standard three year degree course. Studying law, dentistry, medicine or architecture will be even more expensive because courses can last six or seven years.
The average debt for UK students on graduation is currently £13,252 according to National Union of Students, based on the average debt for students graduating in 2006. Small wonder then that nearly a third of students said that debt had caused them to consider dropping out of higher education, according to a Prudential survey.
But all is not doom and gloom. 67 per cent of students told the same survey that they felt the financial cost of tertiary education had been worthwhile, despite the financial strains this can cause. And there's a great deal you can do to stay out of debt, or at least to minimise your debt, if you know how to make the most of the various allowances and tax benefits that apply to students.
For more, click on the links below to move to the section you want to read:
You can apply for a student loan to help pay for tuition fees and living expenses from your Local Education Authority (LEA). The latter will undertake an assessment of your parental income, or your eligibility for a loan if you have already left home.
Loan application forms can be obtained from your LEA and should be returned to the Students Loan Company Customer Support Office (CSO). Although universities can charge up to £3,070 a year in tuition fees for students starting in the 2007-08 academic year, no full-time undergraduate is required to pay fees while they are studying.
Students at Scottish universities only have to pay £1,700 pa, (£2,700 pa for medicine) and £3,000 at Welsh universities. Any increase in fees is to be pegged to below the rate of inflation until 2010. For details, check out UCAS website.
Eligible students can take out a student loan each year via the Student Loan Company, to help pay for tuition fees and living expenses.
Low income students can apply for one of two grants for maintenance costs. Both grants are non repayable and the maximum that can be claimed is £2,765 a year.
The maximum amount of £2,765 is payable to students with a household income of £17,910 pa or less and a partial grant is paid on a sliding scale, if your household income is between £17,911 and £38,330. Over £38,330, no grant is payable.
All other students under age 60 can apply for a student loan as set out below. Up to 75 per cent of the maximum can be applied for, irrespective of parental income, but the remaining 25 per cent is means-tested.
|Maximum student loan entitlement 2007-08
|Living away from home, studying in London
|Living away from home, studying outside London
|Living at home
The interest rates charged on student loans are set at the rate of inflation each year (4.8 per cent from 1 September 2007). Once you leave university, you will have to start repaying your student loans based on 9 per cent of your income, which exceeds £15,000 pa.
The only circumstances in which your loans will be written off are if you die, become disabled and can never work again or if your loans remain upaid after 25 years. Contrary to common belief, going abroad is NOT an excuse for not paying.
There are strict time limits for applying for certain loans, grants and allowances so be sure to file your application in good time. For details, click on NUS website.
For more information on the help available, contact your local education authority or the Department for Education & Skills helpline 0800 731 9133 www.dfes.gov.uk/studentsupport and the Student Loans Company on 08456 077577 www.studentfinancedirect.co.uk. If you are going to university in Scotland, contact the Student Awards Agency for Scotland on 0845 111 1711 www.saas.gov.uk.
Higher education grant
The Higher Education grant is a means-tested award, which does not have to be paid, and is worth up to £1,000 for those whose family income is £16,340 or less. If the income is between £16,340 and £22,324, you will receive part of the grant. Over £22,325 will not receive any grant.
Other sources of funding
In addition to student loans, you may be eligible for assistance from other sources such as various grants, bursaries and endowments from colleges and universities. American colleges and universities provide a large number of bursaries and endowments, so it may be worth investigating courses offered in the US.
Other benefits and allowances which some students can claim include:
- Grants for part time study
- Access to learning fund (for students in financial hardship)
- Disabled students' allowance
- Parents' learning allowance
- Loan parents' grant
- Childcare grant
- Adult dependants' grant
- Care Leavers' grant
- Child tax credit (for students with dependent children)
- Access to learning fund
- Part time students
All students under age 50 are eligible for a student loan, providing they meet the residence requirements. Students aged 50-54 at the beginning of their course, can apply for a student loan, but they must be able to show that they plan to work after they finish their course. A student with a husband, wife or partner or another member of their family who depends on them financially, may be eligible for the Adult Dependant's Grant.
Saving in advance
Even a small amount saved each month, either by yourself, or your parents, can grow into a useful sum, providing you start early enough:
- Anyone over 18 can save £7,000 a year into an Individual Savings Account in the 2007-08 tax year (£7,200 from 6 April 2008). Any income or capital gains are largely tax free on withdrawal.
- Anyone over age 16 can save up to £3,000 in a mini Cash Isa.
- Investments made on your behalf by your parents are taxable on your parents once the income reaches £100 in any tax year. So savings plans should be set up in your own name, so that you can benefit from your own personal income tax allowance of £5,225 and capital gains tax allowance of £9,200 (2007-08).
- Other tax free accounts are available from National Savings
- If your parents have unmortgaged equity in their property, they may be able to remortgage to provide you with a lump sum.
Ways to cut costs
The NUS card, which is available to all students at further and higher education institutions, gives you access to a number of discounts and special offers at many of the top high street retailers.
You can obtain a NUS card from your students' union from August onwards and you can activate it at www.nusonline.co.uk, where you can also access information about further discounts and competitions.
You can also subscribe to the NUS monthly newsletter which provides updates on student offers via email. Many offers are made each September, so it is worth checking at the start of the academic year. With an NUS card, you can also obtain a Student Railcard for discounts on rail fares.
One of the largest items of expenditure, after tuition fees, will be the cost of accommodation, which for most students, will mean renting for the first time.
This means you need to become acquainted with the world of tenancy agreements, deposits, dealing with a landlord and sharing utility bills. When signing up to a tenancy agreement, make sure that your landlord has signed up for the Tenancy Deposit Scheme for Regulated Agents.
By so doing, you will know that your deposit is protected under the Association of Residential Letting Agents and that there is a dispute resolution procedure you can turn to if there is a dispute over the cost of missing items and repairs.
Other matters to clarify with your landlord at the outset are whether full or half rent is payable over the summer vacation and that the inventory accurately records the contents and condition of the property when you take it. Any damaged items should be reflected in the inventory.
Another potential area of dispute is sub-letting and changes in tenants to those named on the agreement during the tenancy. Where a property is leasehold and your landlord is subject to a covenant imposed by the freeholder, such subletting could constitute a breach of the lease and lead to your eviction at the insistence of the freeholder.
To avoid problems with your landlord, ask for a list of approved landlords from your students' union, or if this is not possible be sure to use an Association of Residential Landlords agent.
Remember that you DO need a TV licence if you have a television in your accommodation. However, if you purchase a licence in October, you can claim a refund for July, August and September if your tenancy ends in June. You can purchase a licence online at TV Licensing and choose from a number of ways to pay, including direct debit. Alternatively, call 0870 242 1417.
If you have valuable items, it is worth taking out a contents insurance policy to protect against theft. Student lodgings are an easy target for burglars because many students own a PC or laptop, MP3 player and a mobile phone.
The NUS recommends Endsleigh Insurance because it specializes in the student market. Endsleigh offers three tips to students when buying contents insurance:
- Don't underestimate the value of your belongings
- Don't assume that you'll be covered by your parents' policy;
- Be sure to obtain cover for 'walk in theft' (i.e. where there is no sign of a break-in) - a common feature in theft from student accommodation, but not standard with other policies.
Being a student landlord
For most students this means, accommodation will mean renting. However, rather than rack up debts on rent for three years or more, you could consider buying a property yourself, with the help of your parents.
This will normally involve asking your parents to act as guarantor to the mortgage so that you can borrow more than you would normally be able to. This will mean that your parents are jointly and severally liable with you for the mortgage repayments and their home will be used as security for the loan.
You can normally obtain a buy-to-let mortgage for 85 per cent of the purchase price. Renting out spare rooms to three or four friends will help with the monthly rental income.
Most lenders will want to see rental income of around 125 per cent of the monthly mortgage repayments. The mortgage should also taken out on an interest-only basis, because mortgage interest on a buy to let property can be offset against any income tax due on the rental income.
As the property will be partly your 'principal private residence' and partly a buy to let property, there are various tax relieves which will mitigate significantly the effect of capital gains tax when you come to sell it. If you are renting out to one person as a lodger for less than £4,250, you could offset the rental against the annual rent-a-room-relief of £4,250.
Rental income above that will be treated as the rental income of a buy- to- let landlord. You can offset any income tax due on rental income (after the deduction of mortgage interest relief and various allowances) against your personal income tax allowance of £5,225 (2007-08).
Remember that you will have to repair and maintain the property, insure it and decide what to do with it in vacations. Being a student landlord can be extremely tax effective, providing you go about it in the right way so be sure to take expert tax and independent financial advice.
Working while you're a student
Research shows that 58 per cent of students say they have to work in term time and 85 per cent during the summer vacation in order to make ends meet.
You can find part time employment, either via one of the 110 campus job shops or through a high street employment agency. Either way, you should be aware of your rights with regard to minimum pay, tax, union membership and health and safety legislation. (For details visit www.morethanwork.net)
If you have not already used up your personal income tax allowance of £5,225 in the current tax year (2007-08), there is no need to pay tax on holiday pay and then to claim it back later.
To avoid being overtaxed on holiday pay, ask your employer to complete a P38(S) - a standard form issued by HM Revenue & Customs. This will ensure you pay no income tax on holiday pay during the 2007-2008 tax year which ends on 5 April 2008.
It will also ensure you pay no National Insurance Contributions if you earn less than £100 a week. This threshold includes all income from work, as well as any other taxable income, but excludes student loans, scholarships, grants and tax credits. P38(S) does not apply to part-time work undertaken during term time, but applies to all holiday periods such as the summer months, Christmas and Easter.
If have paid too much tax in the past, you can claim it back up to six years after the relevant tax year ended. You need a repayment claim form which you can get from your local tax office or direct from HM Revenue and Customs.
Earnings above the personal allowance threshold of £5,225 (for those who complete the P38(s) form) are taxed just like any other taxpayer, namely, at 10 per cent on the first £2,230 over £5,225, rising to 22 per cent for earnings between £2,230 and £34,600 over the threshold. Earnings over 39,825 are taxed at 40 per cent.
If you earn less than £5,225 in this tax year, you can put your hard earned cash into a gross paying bank or building society account. To get gross interest, you need to complete form R85. Once your balance exceeds the personal allowance for the prevailing tax year, you should inform the bank or building society so that your savings are taxed at source.
Choosing a bank account
If you are about to start higher education, you are likely to be inundated with offers from the high street banks to entice you into opening an account with them.
Student bank accounts typically offer you freebies such as DVDs, vouchers and discounts which can look attractive, but you need to check out the underlying terms and conditions of the account before signing up.
For instance, the most important features are:
- rate of interest on credit balances
- rate of interest on authorized overdrafts
- rate of interest on unauthorized overdrafts
- other charges levied for normal banking services
Many student accounts offer introductory offers such as a 'free' overdraft, in which case, you need to ask how long this lasts and the 'revert to' rate of interest once the introductory period is over.
You may also be offered a credit card, in which case, you need to ask the same questions - how long any offers last and what the deal is thereafter. If you do take on a credit card, try to make full payments on time or you can easily run up huge debts. Also never use a credit card for cash withdrawals as this is a very expensive way of accessing cash.
Four golden rules to remember
- If you need to go overdrawn, agree an authorized credit limit with your bank. Unauthorised overdrafts are extremely expensive and you will incur extra charges, as well as a very high rate of interest.
- don't use your credit card to withdraw cash. Interest starts clocking up immediately and the interest rate will be higher than for purchases.
- Avoid store cards as these are even more expensive than credit cards.
- If you have debt problems, seek advice from your bank immediately. Don't bury your head in the sand, thinking the problem will go away, because it won't.
Further sources of information
- NUS Student Council.
- Department for education and skills: call 0800 731 9133 for the following two guides:
- DFS Student Support: 0800 731 9133
- Inland Revenue tax credit helpline: 0845 300 3900 for help with tax credits.
- Consumer Counselling Services : 0800 138 1111 (Mon-Friday 8am-8pm).
- UK Insolvency Helpline : 0800 074 6918.