ICAEW on Personal Finance

Transcription

1 ICAEW on Personal Finance How much will it cost me to go to university? Kate is about to go to university to study for a degree in business and finance. She is really looking forward to moving away from home, meeting new friends and being able to study a subject she has a real interest in. Kate is keen to understand how much it will cost her to go to university and what financial support will be available to her. Kate will get a student loan to pay for her tuition fees and a maintenance loan to help with her living expenses, but she is wondering if there is any other support available to help her to pay for her accommodation.

2 Student loans and repayments Here are some examples of what you would repay: The main student finance package includes a: Your income per year Monthly repayments Tuition fee loan Maintenance loan Maintenance grant. Tuition fee loan This loan pays for your course. It is paid directly to your university or college and because it is a loan you have to pay it back. The loan is up to 9,000 per year and will vary depending on what fees the university you are going to has decided to charge. So if you go to a university that charges the full 9,000 per year, you will owe 27,000 in tuition loans after a three-year degree course. Maintenance loan Maintenance loans help with living costs (eg, accommodation, books and bills). These are available for full-time English students and will need to be paid back. The loan is paid directly into your bank account at the start of each term. The rates for courses from September 2014 are: Living away from home, outside London Up to 5,555 per year Living away from home, in London Up to 7,751 per year 21,000 and under No repayments 25, , , , , Additional support Many universities, colleges, companies and charities offer financial support through bursaries and scholarships. Extra support may also be available to students who have dependents, disabilities or specific learning difficulties. If you get or qualify for income support or housing benefit, you may also receive a special support grant instead of a maintenance grant. Your student loan balance will be written off after 30 years so after this time, you won t have to pay off any more. Research all the financial support options available to you before you apply for your university course (especially bursaries and scholarships). Living at home Up to 4,418 per year You spend a year of a UK course studying abroad Up to 6,600 per year Maintenance grant This grant also helps with living costs. You must be a full time English student and you will need to provide details about your household income. The grant will be paid into your bank account at the start of each term. You won t have to pay this grant back but any grant you receive will reduce your maintenance loan.

3 Different types of accommodation All universities will have some accommodation that they manage, usually called halls of residence. Newer university accommodation often takes the form of flats that are self contained or share a small communal area. Places in university-run accommodation are usually only available in the first year of your course because they are in such short supply. Even then you are not guaranteed a place and many inner city universities in particular will not have places left for students who apply late or get a place through the clearing process. How much will you pay? Expect to pay anywhere between 300 and 600 per month (more if in London) depending on what type of accommodation that you want. Accommodation that has catering provided or personal en-suite washing facilities will cost more. Rent is usually paid termly, in advance, and you may also have to pay a deposit which you will get back when you move out as long as you haven t damaged the property. The facilities provided in each university will also differ. Most rents are inclusive of energy costs (heating, lighting and water) and contents insurance. Some also provide internet access and membership of nearby sports facilities. You will have to pay for a TV licence and will probably have to provide your own bed linen, towels, crockery, cutlery and cooking utensils. Privately-rented accommodation The cost of privately-rented accommodation varies greatly, depending on the area of the country, the condition of the property and how many people you share with. This payment will be for the room, or house, only. You will have to meet catering costs yourself. Expect to pay per month, more if you are in London. Again you can expect to pay a deposit (usually equivalent to one month s rent) that will be repaid at the end of your tenancy. To avoid arguments with housemates and/or the landlord when you leave the property, make sure that you: read the wording of the lease agreement very carefully; take photographs of any areas of damage that were already present when you first entered the property; and complete an inventory of all items in the house. The last two should be shown to the landlord as soon as completed so that he/she agrees with you. Increasingly landlords are asking tenants to provide a UK-based guarantor, who would be legally responsible for paying your rent if you fail to do so. If you don t have a UK-based guarantor (usually a parent), some landlords will require you to pay several months rent at the start of the tenancy (usually between three and six months). If you live in university residences in your first year and have to move into privately-rented accommodation next year, you would normally arrange this in the June/ July after your first year exams. This means that, as you will pay your deposit in advance, it will come out of your current year s funding. Many students forget to take into account the cost of travelling from their accommodation to university. This could mean that a place that initially looked cheap actually proves to be quite expensive. Make sure you have enough money at the end of your first year at university to pay your deposit for next year s accommodation.

4 Interest payments Interest is the amount of money that you pay in order to borrow money. You pay it to whoever is lending you the money and it is normally paid as a percentage of the amount that you have borrowed. One of the cheapest forms of borrowing is the student loan. For up to date information on the current repayment rates visit studentloanrepayment.co.uk Some pay-day loan companies charge interest of over 5,000% on their loans. ( December 2013) If you re going to university, make sure you contact your bank to find out how long you have to pay off your student overdraft once you have graduated. Any other form of borrowing that you have will charge higher rates of interest. In order of interest rate paid, here are some of the other main ways of borrowing money. Bank loan this is money borrowed for a specific purpose and for a set period of time. Repaid in instalments and usually taken straight from your bank account, rates will vary from 5% 10% APR. Credit Union loans money borrowed from local not-for-profit financial cooperatives. They tend to be for borrowing small amounts and the interest rate can range from 6% 26% APR but is generally around 13% APR. They are a much cheaper alternative to loan sharks or pay-day loan companies. Overdraft when you take more money out of your bank account than you have in it. You can only do it if the bank gives you permission and there will usually be charges and interest to pay if you do so. Rates will vary from 15% 20% APR. Most students should have an account that gives them an interestfree overdraft, the amount varying from bank to bank. However, once you have graduated any overdraft will need to be paid off or you will start to pay interest on it after a certain period of time. Credit cards these are used to buy products from most retail high street or online outlets. You are given a credit limit, which could be several thousand pounds and must repay any outstanding amount by the end of the month. Any amounts not repaid are charged interest rates similar to overdrafts, 15% 20% APR. Store cards similar to credit cards but only for use in a particular shop, or chain of shops. Interest rates are higher though and range from 20% 30%. Loan sharks these are illegal money lenders with no licence to lend money. Although they won t ask for much identification, their rates can range from 30% 3,000%! Pay-Day loans the most expensive form of borrowing. These are aimed at people who want to borrow relatively small amounts (up to 400) over a short period of time. The APR and default charges are very large.

5 Dealing with debt Most students emerge from university in debt to the government and will, over time, repay their student loans. However, a few students get into real problems with debt during their time at university. Some examples of the sort of difficulties they face include: repaying debts, for example on credit cards, store cards, overdrafts or loans; missing payments because they can t afford them; borrowing more money to repay their debts; using pay-day loan companies; being charged lots of interest; and losing track of how much money they owe. It can be very tempting to ignore a difficult financial situation, but it is important to remember that the debt will not disappear by itself. The situation will usually get worse the longer you leave it. It is never too late to improve the situation, so take action now. The correct course of action is to talk to someone about your problem(s) and get help to resolve the situation you are in. All universities will have a debt/welfare adviser in their Advice and Counselling Service, who can help you to deal with your debts. They are used to dealing with these issues and they know that many people who are in debt feel embarrassed or ashamed and are reluctant to ask for help. Any conversation that you have with a debt/welfare adviser will be confidential and nonjudgemental about your situation and they will not ask how you got into debt. After completing your degree the average student debt is expected to be 40,000 50,000. (Push university guide). Never ignore a debt problem if you ever get worried about your debts, seek advice sooner rather than later. Figures are correct as of December 2013 ICAEW /14 Most debt advisers would do the following. Work out how much money you can afford to pay each month, if any, for debt repayments. Help you write to all your creditors to offer them a realistic monthly repayment amount based on what you can afford to pay. Ask your creditors to consider freezing interest charges so that all of your repayments help reduce the total debt. You might have already tried to negotiate with your creditors without success. However, creditors will usually take their customers more seriously if they have the support of a third party, such as a debt/ welfare adviser. Alternatively, there are national organisations like National Debtline or StepChange that you can contact: freephone freephone Both organisations give free, confidential and independent advice on dealing with debt. They offer lots of practical advice online or by phone. You can also download sample letters to use to send to creditors to renegotiate repayment amounts. Depending on how many different debts you have and the size of your debt, both companies also offer advice about other options such as making a debt management plan where all your debts are consolidated and you pay one monthly amount.