The average student debt could reach £50,000 within 18 years if tuition fees rise to £7,000 a year. That was the claim from investment specialist The Children’s Mutual this week, after the fees that university students are charged once again became a hot political topic, writes John Mair.
For most students, graduating with a hefty debt is probably seen as inevitable. But it doesn’t have to be that way. Some enterprising students have turned the cost of going to university into an advantage by making an annual profit from it, even accounting for the repayment of their loans.
Take the case of Michael Heaton (not his real name), of St Hugh’s College, Oxford, who is studying politics, philosophy and economics … and is putting his economic theory into daily practice. He looks set to leave Oxford in 2010 owing nothing, and even with something left over. He says it is all about grabbing opportunities and micro-managing your finances.
Heaton opened his financial books for 2007-08 – his first year at Oxford – to Guardian Money. They make for fascinating reading, revealing a profit for the year of £3,365.
He is saving for a rainy day or to pay for a master’s degree, which would cost £12,000 per year.
Given the economic climate, more students are heading for the shelter and extra insurance offered by such a top-up degree to increase their chances in the job market, and Heaton is no exception. So, where does his £19,315 of income come from?
Heaton’s mother is a single parent with a small pension and a smaller income. Because of that, he qualifies for a means-tested “Oxford Opportunity” grant of about £4,200 towards his maintenance. Ironically, Oxbridge, being one of the richer institutions, can afford to be generous to attract “poorer” students. That grant is interest free and does not have to be repaid.
Heaton also qualifies for a state maintenance grant of £2,765 from his home county council. Other “free” money comes from a college bursary of £1,000, and another from Citibank for the same amount. As he says: “Somebody has to get them, so apply.”
His father, who has continued to support him, gives him £3,000 a year, which doesn’t have to be paid back. So, before Heaton graces the doors of the Student Loans Company, he has about £12,000 in the bank.
That money is spread around several accounts and moved according to where the best rates of interest are. He has one central reserve savings account, with ICICI Bank, and whenever Heaton receives money, he decides how much he will save long term. The account earned £200 interest during the last academic year.
In addition to the fixed grant income, Heaton, like every other UK student, can max out his borrowing from the SLC and the banks. A student loan of £3,070 matched his course fees, and he additionally received a £3,280 maintenance loan. That money was borrowed at 4.8% (a lower rate than he was getting on his savings account) and is not repayable until he leaves university and earning at least £15,000 a year.
He will owe the SLC nearly £20,000 on graduation, but it is what you would describe as a soft loan, and his annual profit included repayment of this.
Heaton also took full advantage of his “free” £1,000 overdraft with a leading high street bank. “Avoid bank accounts which promise goodies,” he advises.
In total, Heaton had £19,315 at his disposal that year. He watches every penny he spends, with the help of a spreadsheet on his laptop. He had a room in college – not cheap, but even with membership of the boat club and posh college dinners thrown in, he only spent £3,610 on that.
Outside the cloisters of St Hugh’s, he spent £3,844 on travel (home and to see a girlfriend), alcohol (a student weakness, but mitigated by “pre-loading” before parties and meals out), and buying books. However, when it comes to the latter, his advice is to use the university library as much as possible, plus Google Books and online academic archive JSTOR (jstor.org).
With other spending, Heaton only directly splashed out some £8,600 that year – leaving £10,715.
Take away the £7,350 of loans for the year, and that leaves a tidy profit of £3,365 – enough to fund his educational trips to Slovenia and Tuscany in the summer break, although even the cost of those would have been covered if he had been quicker off the mark in applying for assistance.
- Article courtesy of John Mair and Guardian Finance