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Borrowing money as a student

Debt can be a scary word, but it’s important to remember that not all debt is bad. For many people, it’s a normal part of everyday life and only becomes a problem when it becomes too much to manage.

If you’re heading off to uni it’s likely you’ll be considering taking out a student loan. To help, we’ve taken a look at student finance and explored some of the things you'll want to know.

Student loans

During your time at university, you’ll have two main costs to cover – tuition fees and living expenses. Student finance may be available to help with both.

Tuition fees are usually paid directly to your course provider and these can often be much less if you’re on a placement year or if studying abroad - so check with your university. 

A maintenance loan is to help with living costs such as rent, food and transport. It's usually paid directly to you to manage. The amount you can get depends on your household income and where you’re studying.

Repaying your student loan

You’ll be expected to pay back your loan, but not until after you’ve graduated and your income is over a certain amount. Things to bear in mind:

  • Repayments will automatically be taken from your salary, along with income tax and National Insurance contributions. Unlike other debts, repayments will stop if you lose your job.
  • You only need to start repaying your loan at the earliest in the April after you graduate.
  • Depending on the student loan you have and where you studied, your loan may be cancelled after a certain amount of time.1

Paying interest on your student loan

Interest is charged from the day you start receiving the loan until it’s repaid in full or cancelled.

While you’re studying, the interest rate is based on the UK retail price index (RPI) plus 3%. After you graduate, it depends on how much you earn.

The interest rate may change depending on when you started your course. You can find out more about this on the student loans company website.

Student overdrafts

Many banks have student bank accounts that can offer an interest-free arranged overdraft.

An arranged overdraft is an agreement that you can spend more money than you have available in your account. A student arranged overdraft limit will typically be between £1,000 and £3,000.

Be aware that you'll have to pay back what you’ve borrowed when you leave university and check for any fees that you might be charged if you’re allowed to go over your arranged overdraft limit. This is known as an unarranged overdraft.

Student credit cards

As a student it’s unlikely you’ll have a long track record of borrowing, so you may have a low credit score. This is what lenders use to help them determine whether or not to give you credit.

A student credit card could help you build up your credit rating, which could stand you in good stead for any future borrowing.

If you choose to take out a credit card and spend money on it, it’s important you never miss a repayment as it may harm your credit score if you do.

Student credit cards typically have a low credit limit to help people avoid getting into too much debt. But you should always try to pay off your balance in full each month so you won’t have to pay any interest on what you owe.

Explore more: How do credit cards work?

Where to find debt advice

If you need some support when it comes to your finances, there are places you can contact:

  • University: Speak to the National Association of Student Money Advisers or your Students’ Union welfare team, who'll be able to guide you in the right direction.
  • Bank: Let your bank know your situation. They may be able to offer you an extended interest-free overdraft or draw up a repayment plan.
  • Charities: There are also several charities that can discuss your options with you, including StepChange, National Debtline and Rethink.
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