A Monster Guide To Student Finances

If you or your brood require information on student finances, this monster guide is the place to start - and finish! It's all here.

You know all those habits your parents have that annoy you so much? The ones that make you desperate to get out of the house and into student accommodation? Well, one day you could be humming annoying songs just like your pa does. One of my colleagues wrote recently that some behavioural psychologists reckon it can take just four weeks for a behaviour to become a habit, which, by definition, is hard to reverse.

Financial habits are no exception. If you start university with a poor budget, or none at all, and no knowledge of the financial products you use, it's easy to rack up large debts. These can be difficult to handle by the time you've won your graduation hat. Indeed, your bad money habits are liable to continue for many years afterwards.

Not long ago, Student-debt.org conducted a survey of students and recent graduates. Two of the most interesting findings were that 45% of students worked at least 16 hours per week during term time and 62% of students said that they struggled financially during university. This means roughly the same number of people who didn't work during term time were struggling with bills.

This suggests to me that the overall message is that the people who put the effort in do get rewarded with much better finances at the end, and they probably have fewer miserable times worrying about money!

With this in mind, here are the six areas that you students should think about.

Current Accounts

I hope that most of you will already have a student account by now, but do you have a good one? The trick with bank accounts is to forget all the tempting gimmicks they throw at you, such as portable music players, because they invariably hide the uncompetitive terms and conditions. Most students will be better off getting the bank account that offers the largest interest-free overdraft.

Typically, student accounts will offer larger interest-free overdrafts as you progress through university, so you might get an account like this:

Year	Interest-free overdraft
1	£1,000
2	£1,250
3	£1,500
4	£1,750

If you choose a current account offering £1,000 interest free and you average an overdraft of £2,000 (which is not unusual for students), you might pay an awful lot in interest. Abbey, for example, offers £1,000 interest free to first-year students. If it grants you a £2,000 overdraft limit you'll pay 9.9% on any overdraft over £1,000, which means you might pay approaching £100 in interest in the first year alone.

However, there are student accounts which offer closer to £2,000 interest-free. One, with Halifax, offers £2,750 interest free in the first year! Read more here on the best student accountsand compare student bank accounts with our search tool.

Borrowing

The Student-debt.org survey I mentioned earlier also found that 51% of the respondents had more than £9,000-worth of debt, including student loans but excluding mortgages. 19% had more than £15,000 of debt!

Clearly, if you're going to have debts, you'll want them to be as cheap as possible, which means you'll want to pay as little interest as you can. With this in mind, lets consider your main options:

Borrowing from relatives
It goes without saying that borrowing from parents or other relatives is the cheapest way for you, presuming they're relaxed about repayment and won't charge you interest! You'll hopefully get some sort of regular handout from your parents anyway, but, if things still get tight after that, why not ask them for a loan? (Psst! I reckon you'll find it a lot easier to convince them if you can show that you're following all the advice in this guide!)

Student loans
You'll surely have been told all about student loans already, but, to summarise this loan is the cheapest debt you can get (other than loans from family), as you're just charged interest at the rate of inflation (rising prices). The terms for paying back this loan are favourable too, as you need not commence repayments till you're earning £15,000 per year. Also, you only pay back 9% of what you're earning over the £15,000 mark, e.g. if you're earning £16,000, you pay 9% of £1,000, which is £90.

Full-time students can get a student loan for around £3,000 to £6,000 depending on where you live and your circumstances. You can get an additional student loan to cover tuition fees, which could be as much as £3,000 this year. (Next year it's £3,070.) Student loans are paid in three instalments at the start of each term.

It can be tempting to take your loan and squander it but, if you think about it, your student loan is rather like a salary. It's not free money, as you have to earn it by working for a living, i.e. completing your course. For many students, it's a vital tool for paying for the basics, so don't get carried away!

Credit cards
If possible, you should try to keep your spending strictly within your student loan and your income. You'd also benefit by keeping your overdraft as low as possible. However, sometimes more money is required, in which case you may need a credit card to fund your borrowing.

Credit cards can be an expensive way to borrow but they are useful if used responsibly. Firstly, you get better protection if you use a credit card rather than a debit card. If you purchase something costing £100 to £30,000 with a credit card, you can claim against the card issuer if something goes wrong, such as the supplier going bust. Also, if you select the right card you could buy goods and pay for them months later without paying interest, or you could be rewarded with store points or cashback without paying interest. See The Student Credit Card Guidefor more details.

The golden rule of student borrowing is: the less you owe at the end of your boozing days, the quicker you'll be able to start saving and investing, getting on the property ladder, and buying things with your own money. Trust me, it's the route to a happy life! It doesn't get more satisfying than that.

Income

By now, I'll hopefully have impressed upon you the need to keep your borrowings down. In order to achieve this, you'll need to earn some extra money. Student income usually comes from parents, grants or part-time/holiday work.

Parents
You may be desperate to leave the house after 18 years with ma and pa, but their continued support would make your life much easier. By helping you out with a few hundred here and there, if you budget well you may end up paying thousands less in debt interest in your lifetime.

Grants
Students from low-income families receive a full maintenance grant of £2,700 per year. Like the student loan, it's paid in three instalments at the start of each term. Students from middle-income families receive part of the grant, and students from high income families get zip.

Students receiving the full maintenance grant are entitled to further support from their university if it charges more than £2,765 in tuition fees. Generally, the university is expected to cover the difference.

You can get other grants if you're eligible for Income Support or other means-tested benefits, such as Housing Benefit. New students can't get both a maintenance grant and one of these special support grants; it's one or the other.

Part-time or holiday work
I'm sticking with my earlier thought that being a student is effectively a poorly-paid first job. I think that virtually any non-student earning just £6,000 per year would get a second job. Realistically, you'll probably need one. You might choose to work during holidays, in the evenings or at weekends. Or possibly all three!

Budgeting

In a nutshell budgeting is adding up your income and deducting your expenses. It helps if you work out a budget for the whole year and another one on a monthly (or even weekly) basis. To do a monthly or weekly budget, you set aside money for food, travel, entertainment and so on. You also break down your big annual expenses, such as holidays and car maintenance, into manageable amounts. Hence, you can save up for your big purchases.

When people are in serious debt, we recommend they do a Statement Of Affairs (SOA), which is a comprehensive list of all their income and expenditure. I reckon that anyone living on a low income - which means most students - should do one too. It's a great place to start with your budget, so that you don't forget something important.

And it's so easy to forget things! Tuition fees, rent, fuel bills, travel expenses, books and course materials, insurance premiums (such as for car and home contents cover), mobile and other phone calls, food, leisure and entertainment, clothes and laundry bills...The list is endless!

To get you started on the road to good financial habits, keep a spending diary. To do this, you carry a pen and a notepad around with you. You write down the amount of money you have spare for the month (or week) and, whenever you have a spare minute, you update the diary with any expenses you've made. OK, so your parents don't do this, but they probably don't need to count the pennies quite as much as you!

Money-saving

We're always collecting money-saving tips, as they can make a difference to almost anyone, regardless of their income. Recently, Halifax offered these tips for students:

Pool resources. Students in year two and beyond can make the most of the friends that they've made by looking for a house together. If you're renting a whole house between you, you may find a landlord willing to offer you a deal rather then lose income through empty rooms.
Save on transport costs. For those shorter journeys walking or cycling are the best way to get around. For longer journeys make sure you take advantage of the discounts available to students for coach, bus and rail travel.
Save on clothes. Many university towns have lots of charity shops or dress agencies aimed at students where you can pick up bargains.
Save on course books and equipment. Buying books for the new term is one of the most expensive parts of student life. Rather than buying new, you may be able to borrow your books from the university or town library. Alternatively second-hand copies are much cheaper. Local bookshops or ebay are a good place to look. Also check notice boards for books for sale. You could also speak to students who are on the same course as you but one year ahead and ask if you can buy their books when they've finished with them.
Save on food. Eating out, takeaways and other convenience foods are expensive and will make a huge dent in your budget. If you can't cook then learning should be a priority. Eating healthily need not be difficult and will also mean you're in a better state to concentrate on your studies. There are several recipe books aimed at students living on a budget, such as "Vegetarian Grub on Grant" or "More Grub on Less Grant".
Carry only what money you can afford to spend and leave the plastic at home. If you have excess cash or debit and credit cards on you it's easy to spend more than you intend or need to. Just taking out what money you can afford to spend will it's harder for you to succumb to the temptation of that CD or extra hour in the Student Union bar.
Manage your debts.For most students, debt is a way of life but there are ways to manage it without your finances spiralling out of control. Some forms of borrowing - like student loans - are cheaper than others and give you a long time to repay your loan. Keep in contact with your bank if there are any changes in your circumstances or you're having money problems, it's much better to try and nip problems in the bud.
Sell things you don't need anymore.Your loss can also be your gain if you visit www.ebay.co.uk or www.loot.com.

See also our Living Below Your Means discussion board for hundreds of money-saving ideas.

Insurance

Many students have three insurances to consider, namely home contents, car and travel.

Home contents insurance
Today, MoneyExpert said that students start university with an average £4,500-worth of possessions. They also said that one in four home insurance policies do not cover the belongings left by students in their family home. Having worked in insurance, I'd recommend that you check to see if your belongings are covered. If they aren't, you might want to consider separate cover.

Conversely, sometimes you get cover on your parents policy for the possessions you take away with you! This means you might not need to take out a separate policy. Again, you should check the small print of your parents policy.

Whether your possessions are covered by your own policy or your parents', make sure that the terms and conditions are suitable. For example, you may only be covered from theft if there is a forceable entry, so you might not be covered in halls of residence if there are no locked doors, for example.

Car insurance
We frequently write articles on car insurance, so these three articles should contain most of the information you need:

Travel insurance
Taking out travel insurance is relatively simple. The first trick is to buy it either online or from a broker. You certainly should not buy it from a travel agent or from your tour operator, as it's inevitably over-priced. You should compare single-trip and annual policies to see which is the cheapest for you (it varies) and you should read the small print. Pay particular attention to the excesses, limits and exclusions.

If you're travelling to Europe, you should also apply for a European Health Insurance Card to get basic medical cover in EU countries. This card has replaced the old E111 form.

Finally, if you want to help out your parents, tell them to visit The Motley Fool for its tips on making and saving money, and choosing the right finance products. Who knows, maybe you'll be rewarded with more money from grateful parents!

> Join the discussion on our Student Finances board.