How Scottish students can avoid the debt trap

Over a four-year Scottish degree, the cost of living for a student could amount to Â£48,000. Picture: Ian Georgeson

Debt levels among students in Scotland are the fastest rising in the UK, according to recent figures from the Student Loans Company. Scottish student debts remain below those elsewhere in the UK, but they are expected to increase significantly over the coming years as reduced grants and bursaries force lower income Scots to rely even more heavily on loans.

The prospect of mounting debts will be a cause of concern for many of the record 28,300 school-leavers who last week learned they had achieved the Highers results they needed to get into university.

The task now is to work out how to get through university without piling up debts that could prove a financial burden for years after graduating.

Scottish students at universities in Scotland have the benefit of not paying tuition fees, whereas English students at English universities and Welsh students and universities in Wales can be charged up to £9,000 and £3,900 respectively. But the students north of the Border are typically in university for four years rather than three, while costs can build up rapidly in other areas.

“Many parents underestimate the cost of a student attending university, even here in Scotland where tuition fees are not charged to indigenous students,” said Trent Lyons, a financial analyst at Chiene + Tait Financial Planning in Edinburgh. “According to figures from the National Union of Students, the average annual cost of living for a student is £12,000, so over a four-year Scottish degree, this could amount to around £48,000.”

Accommodation is the biggest problem for many students, with a recent Royal Bank of Scotland survey finding that high rental costs in Edinburgh help make it the most expensive city in the UK for students.

Some will be fortunate enough to have parents or grandparents with the means to help fund them through university or even invest in a property for them to live in. But for others it will be about more modest measures that keep the wolf from the door and help them focus on their studies.

Starting off with the right habits can make a huge difference, according to Andrew Hagger, finance expert at Moneycomms.co.uk. “For many students, starting university will be the first time they’ve really had to seriously manage their own finances and to ensure there’s enough cash to pay for books, accommodation, food and going out,” he said. “Unless you put pen to paper and draw up a budget of your incomings and outgoings you could soon get in a muddle with your money and end up having to ask your parents to bail you out.”

Simple budgeting can be very effective. Keeping a basic spreadsheet updated with the money you have coming in and going can help you work out how much you’re able to spend while still having money left at the end of term.

Loans and credit cards should be avoided wherever possible, and managed carefully if they become necessary. Borrowers paying only the minimum amount off their card each month can incur hefty interest charges over time and be left with balances that take years to clear.

More than 6,000 students north of the Border have taken out payday loans and other forms of high cost debt, according to research last year by accommodation provider Unite Students.

Take time to pick out the right student bank account. Going for the account with the most appealing incentives might land you with the most expensive overdraft facility on the market.

“When you’re a student you are seen as the high earner of tomorrow, so the banks will try to entice you with all sorts of goodies to sign up for their student bank account,” said Hagger. “However, for most students being able to borrow as much as possible interest-free will be the biggest financial benefit.”

The key factor should be how far you can go overdrawn without incurring fees.

“Lloyds, RBS and Santander all offer a maximum of £2,000 interest- free overdraft whereas Barclays and HSBC are most generous in this area with up to a £3,000 free limit (subject to application),” said Hagger.