A quick seminar on finance

When students pack up their stuff to head off to university this autumn they need to brace themselves for a whole new world of experiences. Some will be welcome, such as a hectic social life; others less so, such as debts likely to remain with them for years beyond graduation.

Alongside academic challenges, students need to learn to budget and many will probably end up juggling studies with paid work.

According to the National Union of Students, 58 per cent of students take a part-time job during term time, working an average of 13 hours a week.

Helen Symons, NUS vice president of welfare, says: 'Students should not have to work: their courses are full-time. But many are likely to need to work simply to make ends meet. Some students work up to 30 hours a week, which is unacceptable. One day at the weekend and one evening is probably the most they should do. It may not be that students would spend any more time studying, but it is important for them to take part in other activities, such as joining societies or volunteering.'

While this year maintenance grants of up to £1,000 are available for the poorest families to help cover fees and living costs, most students will still graduate in debt because they have to support themselves and, for this year at least, contribute a maximum of £1,150 towards their university fees.

Low-cost loans from the Student Loan Company are a must for the majority of undergraduates.

Students living away from home can borrow up to £4,095 a year, or £5,050 if they are studying in London. Those who live at home can borrow only up to £3,240. Three-quarters of the loan is available to anyone, no matter how much his or her parents earn, but the remainder is means-tested.

Under current rules, graduates do not need to make any repayments on these loans - on which interest is charged monthly at the rate of inflation at the time you receive the money - until they are earning at least £10,000. From September next year, this threshold rises to £15,000.

In September 2006, the rules change again. From that date universities will be able to charge variable tuition fees of up to £3,000 a year. To coincide with this, there will be access to additional low-cost loans for those who want to defer this payment, and there will also be an increase in the means-tested maintenance grants to £2,700 a year.

Grants and student loans are all very well, but they are unlikely to offer a complete financial lifeline to students: a three- year course is likely to set them back more than £26,000, according to a survey by NatWest Bank.

Those who do not get help from their parents or from part-time earnings are likely to turn to their bank for extra finance.

Keen to attract the high- earning customers of the future, banks so offer attractive deals on student current accounts. But do not be swayed by bizarre offers such as free fish and chip suppers (current offer from Lloyds TSB) or gift vouchers.

Samantha Owens, research editor at financial data provider Moneyfacts, says: 'It is more important to look at the credit interest and the overdraft terms. Some accounts pay interest on current accounts of over 3 per cent; others offer free overdrafts up to certain limits, often increasing over the years.'

Lloyds TSB and Abbey offer a free overdraft of £1,000 in a student's first year, £1,250 in the second and £1,500 in the third, for example, while Clydesdale and Yorkshire banks do not offer a free overdraft facility.

It is vital never to dip into the red without warning the bank, as interest rates on unauthorised overdrafts can exceed 30 per cent.