Written by: Valerie Hazelrig
How big of a problem is student spending and the debt that will follow for many years after the end of completing a degree?
Tequila mouthwash and waking up with a traffic cone on your head are all a part of student life, as are instant noodles, boring lectures and DEBT.
Most students have to borrow
It’s a fact of life – to go to university, students must borrow and go into debt. But, there is a way to do it efficiently – by borrowing wisely and cheaply, budgeting well, and taking advantage of all discounts, your child can escape the dreaded debt hangover without too much of a headache.
If your child is planning on going to university, you’re probably already qualing at the astronomical costs – tuition fees, books, accommodation, transport, and of course, socialising.
Student loans are low interest
But don’t let the potential debt put your child off studying at university. If managed correctly, it’s totally different to normal debt – it’s only repaid once studying has finished, and if your child doesn’t earn enough when they leave, they won’t have to pay it back. And interest rates on student loans are much lower than your usual sky high credit card bills and overdrafts.
Learning to manage student debt
Students fall into debt as easily as they can fall off a bar stool after vodka games, but it seems they’re rarely educated on how to manage debt, and how to avoid bad debt. Thousands leave university financially damaged and quagmired in debt – already victims of debt culture…but it doesn’t have to be this way.
Distinguishing between different types of debt is essential – all debts are not equal, and some are much better than others.
The best student borrowing
One of the best types of debt a student can take is an official government-backed Student Loan. The interest rate is currently around 1.5%, and is one of the cheapest long-term debts available. The beauty of a student loan is that it doesn’t need to be paid back until after graduation, and the less you earn, the less you must repay. This should be the first port of call when it comes to borrowing.
Don’t bank on it
High-street banks are the next best source of cash for students, and they clamour for custom by offering interest-free overdrafts. However, once the student graduates, normal interest rates are immediately applied. Beware – exceeding an overdraft limit is financial suicide, and charges can be enormous. It can also lead to a vicious cycle that is tough to break free from. Different banks should be researched as thoroughly as a thesis, to find the best rates and services possible.
Avoid expensive borrowing like the plague
Credit cards, payday loans, and bank loans should all be avoided, due to ridiculous interest rates and strict repayment terms. Credit cards can be tough to avoid though – an innocent phone call to a bank call centre to check a balance can result in pushy staff trying to sell unwanted financial products. Make sure your child is educated about how credit cards and short term loans work, and also how credit scoring works.
Buy a bigger piggybank
Here’s the good news – by shopping around, and researching mobile phone contracts, supermarkets, bank accounts, electrical equipment, utility providers, housing, and even happy hours at the local pubs, a student can save thousands of pounds per year.
Budgeting can be difficult for all of us, but help is at hand. There is a myriad of budgeting apps for iPhone, Android, and tablet computers, many of them free. These make it simple to control expenditure and keep track of finances. When your child moves away from home, this will be the first time they ever have to properly budget, so before they leave, work through their annual budget with them.
Once all deductions have been made, divide the leftover amount by 365, which will be how much disposable income they have to live on per day. Prepare to be shocked – this amount can be small, which is why strict budgeting is a must. Also, the need for a part-time job may become pressing…
It can be tempting to blow a student loan as soon as it arrives – party time, and beers all round. But, the time for a splurge is at the end of term, hopefully with all that carefully-saved cash.
Partying is a big part of the student lifestyle, but your child needs to be educated on the dangers of drink and drugs, not only on their physical and mental health, but also on their finances. Once a few drinks have been downed, inhibitions disappear, and so does any notion of sensible spending.
Flash your card
Many places offer a student or NUS discount – a card cost about £10.
Get a job
OK, so you had a hard time trying to get your child to clean their room, but a part-time job is also part of student life. The earlier in the year they find work, and the better off they will be.
Worth it in the end
Shopping around, haggling, and budgeting may not seem like much fun, especially with the temptation and delights of Fresher’s Week looming, but a little hard work now will pay off handsomely in the future. Leaving uni with a string of terrible debts is about as much fun as getting a traffic cone stuck on your head, and with a little common sense, both scenarios can be avoided.