As students take their place at university or head back for another year of study, many are considering their finance options. So where should you start?
The first port of call for UK students seeking to fund their studies should be a government-funded loan to help cover tuition and maintenance costs.
However, in many cases loans from the Student Loans Company (SLC) are not sufficient to cover rising tuition fees and the high cost of living and accommodation in many areas across the UK. This is especially true for postgraduate students, where the funding gap increases between the cost of tuition and what is available to cover course fees.
Did you know?
According to a recent survey, only 33% of students reported that government-funded loans were enough to cover full tuition and maintenance fees. ¹
So how are students bridging the funding gap? Unsurprisingly, 47% of students surveyed reported that they get extra money from friends and family. Students also said that they rely on full and part-time work to receive an income while studying (55%) even though many universities are now advising students to limit the amount of hours you work while studying so there is no adverse effect on your coursework.
When a student has exhausted all of these avenues and are still short on either tuition or daily living expenses, what are the realistic alternatives for students who need extra funding?
Everything you should consider when it comes to student finance
The first thing you need to do when considering funding options for university is to apply for a government funded loan from the Student Loan Company (SLC) to cover tuition fees and a maintenance loan to support your living expenses should you need it.
There are a number of grants, scholarships and bursaries available to students in the UK including allowances for parents, students with dependents, students with disabilities and students from low income backgrounds. You should also always contact your university or institution to see what additional finance options may be available to you.
Once these avenues have been thoroughly explored you should consider the length of your course, and the hours you are expected to put in each week when considering committing to a part-time job to cover expenses while studying.
We recommend drawing up a budget including all anticipated financial income (government loans, grants, part-time jobs, allowances from parents) to see how it compares to what you expect to spend every month on living expenses, including accommodation (this budget calculator is a great place to start). You should also consider how much friends and family will be able to commit to supporting you while at university, so you are never behind on fees, rent or utility bills.
If you have explored all of these avenues and think you are still going to experience a funding gap in any area, this is when you should consider the best form of alternative borrowing options for you.
Alternative sources of student finance
Alternate options for finance can be broken down into three main categories: a student account with overdraft, a student credit card and a private student loan.
When considering any of these options, it’s important to note that you should always try and opt for the versions of these products tailored for students when available as they often have more flexible terms and will factor in your student status (particularly your ability to repay any debt while studying and after graduation). You should review all your options before making a financial commitment to any bank, company or institution (always read the small print and make sure you understand it).
It’s a good idea to consider a student bank account when you start at university. Bank overdrafts are often included as a ‘perk’ on many of these accounts with some banks offering students an overdraft of between £1000 and £3000 interest free over the course of their degree. This is definitely a quick fix when you need some extra cash, but should not be considered a long-term solution or disposable income to get you through every year of your study as it can quickly build up, incurring significant fees when you graduate.
Also be sure to read the terms and conditions of the agreement and make sure you understand the repayment expectations on your overdraft (and make sure to avoid going over your outlined overdraft as you can incur fees there as well!).
Many banks also offer student credit cards with average interest rates between 18% and 20% ². These are better options than non-student credit cards (with interest rates between 20% and 35% ³), but can still add up quickly. If you are an international student some companies do develop specific credit products like non-student credit cards based on international credit history which can also help reducing interest rates. Again this is a significant financial commitment to make as a student, so making sure you understand the repayment expectations and how the interest accrues is really important.
In addition, as a student, it’s really important to build up a good credit history by meeting your repayment obligations on your chosen form of finance. Making sure you understand all the ways to keep a healthy credit rating while you study is a great way to avoid many of the common mistakes that students make around credit.
Private loans for students are another way of financing university costs, however awareness of this option tends to be lower with students than other traditional forms of finance like credit cards. Many students are wary of turning to personal lenders as they may have limited experience of finance and money management before university. Make sure you are doing your research and looking at private loans tailored to students as many don’t require minimum income, employment history or established credit history to qualify.
Here is what you need to consider when taking out a private student loan for the first time:
- Building credit: Students often have a very limited credit history. Borrowing money and being able to make affordable monthly repayments can help build a strong credit score that will benefit you further down the line when taking out other forms of credit (credit cards or a mortgage for example.) To see your own credit history or learn more about credit scores, we recommend checking out providers in this area such as ClearScore, Experian and Money Supermarket.
- Check for hidden fees: It is so important to always look at the small print. Make sure you understand interest rates and APR when borrowing. You need to know the terms of your loan agreement and keep an eye out for any hidden fees, such as penalties on repaying loans early and missed payments.
- Customer service and support: Leverage any service team or online support at companies to answer any questions you have before taking out their financial products. Did they help address your questions? Were they easy to get hold of and forthcoming with answers? Are you able to call, email and get in touch with them easily whenever you may need to?
- Terms and timeframe to pay the money back: Consider whether you can take a break from repayments (note that interest can still accrue during break periods) or extend your loan term should you need to. Also make sure that you understand the implications of not meeting your repayments.
- Affordable monthly payments: Are you able to cover the monthly payments or repayments required on the amount you borrowed both in study and after you graduate. Will you have to rely on other sources of credit to cover these expenses?
- Ratings & reviews: Look at the peer ratings on the companies you consider. TrustPilot is a great source of customer feedback. See what customers say about the service and support they received.
Before taking out any private loan or credit, it is very important to understand interest rates and APR, and how these affect your loan agreement and repayments when borrowing money. We recommend having a firm grasp on interest rates before even considering a private loan. There are many resources online to assist you with this research but this article is a great place to start.
Private loans designed for students
Future Finance specialises in private student loans from £2,000 with interest rates starting from 8% (variable) and a representative example of 20.4% APR (variable). In some cases, a guarantor may be required. We were founded as a direct response to a large gap in the market for students accessing education. We encourage all students to seek government funded loans first and we are here when these options are unavailable or simply not enough to cover all the costs of university.
We aim to support you every step of the way, which is why our private loans are flexible and tailored to student needs:
- Apply any time: We accept loan applications up to six months before your course starts and at any time during your studies. This gives you the flexibility to get some extra support at any point during your studies should you need it.
- Reduced in-study repayments: We require in-study repayments to get you used to making monthly repayments, but these can be as low as £5 per month. We don’t expect full monthly repayments on your loan until three months after your graduation giving you the time you need to get on your feet. An added benefit of the reduced in-study repayments is that they also support students to develop a credit history while studying at an amount that is affordable while they are not in full-time employment.
- Flexible loan periods: We offer loan periods up to 10 years and we do this to keep monthly repayments as manageable as possible after university. Having said this, we do accept early repayments on your loan and there are no fees or penalties for paying back early. We know interest rates can be confusing, but the total amount to be repaid and the amount of interest accrued as outlined in your loan schedule is based on the longest possible loan period available to you. The interest rate and amount to be paid back can be reduced significantly by repaying early or paying back larger sums in monthly repayments if you can do so - the flexibility is there for you to help you manage monthly payments. It is worth factoring in what you may be able to pay back after university at the time of application and how this will affect your total amount borrowed.
- Pausing repayments: You are able to pause repayments for up to six months (two separate periods of up to three months at a time). Keep in mind that interest still accrues during the break period but based on student feedback, we know ‘life happens’ and how important it is to give you the option to take a break from repayments should you need it.
We understand that students may not have much experience dealing with borrowing money and credit, which is why we are dedicated to providing support through the process with transparent information and only lending when we are confident that the student has the ability and means to maintain an affordable repayment schedule. Due to Future Finance’s ethos of responsible lending, tuition payments are paid direct to universities and higher education establishments.
We know the student landscape in the UK is a challenging area for students who are often entering the world of money management for the very first time. We want you to have all the information you need to understand the choices available to you, and to help develop your financial education.
If you have questions about your finance options, check out this link or get in touch with your university for more information. For any questions about Future Finance, please don’t hesitate to get in touch with us.
Future Finance Student Loan Representative 19.1% APR (variable).
Future Finance Postgraduate Loans Representative 20.6% APR (variable)
- 1 Future Finance Online Survey, July 2019, 1,930 students surveyed.
- 2 https://www.hsbc.co.uk/credit-cards/products/student/
- 3 https://www.money.co.uk/credit-cards.htm