STUDENTS received a welcome boost when Scotland's education minister Fiona Hyslop announced that the cost of a degree would be cut by more than £2,000 following the abolition of the endowment, due to be paid the April after graduation.
Provided legislation can be enacted by April, those leaving university this summer will not have to pay the endowment. However, they are still likely to emerge with debts of £13,000.
James Alexander, president of the National Union of Students Scotland, said students will still face a big debt burden. He said: "The money they receive is simply not enough to meet their university costs, so they end up taking on more debt still."
The average starting salary for graduates last summer was £13,860, although those securing traineeships with large or professional firms earned between £14,000 and £30,000.
But the euphoria of financial freedom is likely to be short-lived. The Student Loan Company, banks and credit card issuers will soon come knocking at your door, asking for their money back.
Worse still, you may find yourself sliding even deeper into debt as you struggle with the extra costs of joining the world of work. You may need to borrow more money still to buy work clothes, get a new flat and pay for travelling costs.
But Consumer Credit Counselling Service spokeswoman Frances Walker said it is important that students do not panic. "Now, more than ever, they have to learn to budget and prioritise bills and debts. If they manage them sensibly, they will emerge financially intact."
Shaking off debt
The first step is to take stock by making a full list of what you owe and to whom. Next you must look at how much money you will need to get you through the first few months in work.
Draw up a budget to live on. This should include rent, council tax, utility bills, travel expenses, food, clothes, newspapers and professional journals and then allowances for holidays and entertainment.
Once you see how much is left, draw up a schedule of debt repayment. It is vital to clear the most expensive debts first. These will usually be credit card and store card bills, and any overdrafts on which interest is being charged.
Lloyds TSB senior branch manager Paul Alexander said: "When students come in to see me they will often be paying 30% interest on credit card debts. Our first move is to find a cheaper means of borrowing."
Student loans
The average graduate will leave university this year owing the Student Loan Company £8,698.
Eight out of 10 students leave university with a student loan, but if you haven't taken one out for this last academic year there may just be time for you to do so. This is a relatively cheap way to borrow, so it may help with managing your finances over your first year in the world of work.
Your loan increases in line with the rate of inflation. For example, from last September interest has accrued at 2.4%, but this is likely to be higher next year, along with rising inflation.
You have a bit of breathing space until the loan must be repaid, with repayments beginning the April after graduation and only once your earnings reach £15,000. Then your employer will deduct 9% from your gross pay above this level. For example, if you are earning £20,000, £5,000 will be liable for student loan deductions, making £37.50 per month.
And don't forget that with each salary increase you receive, your loan repayments will rise too.
Plastic pain
Credit cards can be a helpful budgeting tool if used sensibly, as most give 56 days' interest-free credit. If you can't resist the temptation to spend, though, you may need to cut it up temporarily while you get your finances back onto a firm footing.
There are a range of zero-interest cards which charge no interest for a year on balances you transfer from Tesco, Barclaycard, Abbey, HSBC and Virgin (13 months). However, these charge a transfer fee of typically 2.5% to 3%, and will charge interest when you use the card to make purchases.
Be aware too that when you make debt repayments, the cheapest debt is wiped off first. For this reason it can make sense to have two cards: one for purchases and one for transfers.
You can get zero-interest purchase cards from Sainsbury's for 10 months, Marks & Spencer and Morethan until the end of next January, and for six months from Lloyds TSB and Yorkshire Building Society.
The only card with zero interest on both transfers and purchases is Halifax's 12 Month Offer One MasterCard, but it charges 3% for balance transfers. From this week it is only available via Moneysupermarket (
www.moneysupermarket.com and through The Motley Fool (
www.fool.co.uk . However, the bank also has an anniversary card available in its branches which charges zero on both for nine months.
It is vital to make at least the minimum repayment each month, or you will be heavily penalised. If you are forgetful, set up a direct debit to make sure the minimum is always paid on time.
Bank accounts
Once you stop being a student you technically no longer qualify for a student account with its free banking and free overdrafts. Instead banks require you to switch to their graduate accounts, designed to help you manage your debts.
They will normally invite you to switch. If you ignore this invitation they will usually do it automatically.
You don't need to stay with your student account provider, as most banks will accept applications for up to three years from new graduates. But not all banks with a student offering, such as Smile, Yorkshire and Clydesdale, have a graduate deal, in which case you are transferred to a normal current account, which will be expensive if you have large borrowings. It makes sense to be proactive.
Halifax and Bank of Scotland also do not have a graduate package, but they will allow you to continue enjoying the benefits of their student packages, which include a £2,700 interest-free overdraft for a year after graduation.
Elsewhere, graduate packages offer interest-free overdrafts which gradually reduce. Barclays, for example, will lend £3,000 free in the first year, reducing to £2,000 in year two, £1,000 in year three and £500 in year four.
Royal Bank of Scotland, NatWest and Lloyds TSB lend £2,000 initially, reducing over three years, and HSBC will advance £1,500 in the first year and £1,000 in year two.
These accounts do not offer free banking in the same way as a student account, so if you exceed your agreed borrowing limits you will find yourself hammered by charges.
Unauthorised interest is also hefty, typically around 30%.
Other loans
Most banks will also offer personal loans to students at preferential rates. Lloyds TSB, for example, will lend up to £10,000 at 8.4 annual percentage rate (APR), and HSBC up to £25,000 at 8.9 APR. They will also provide career development or professional loans for similar costs, although you should watch out for arrangement fees.
However, these should be avoided where possible and used as a last resort, where other borrowings are out of control and at higher rates.
Tax
Paying as little tax as possible is vital once you begin work. You can earn £5,225 tax-free in the current tax year ending in April 2008.
If you have been working while a student, ask your last employer for a P45. It will tell your new company the correct tax to deduct. Otherwise you will be placed on an emergency code and taxed more heavily.
Be prepared for the deductions to rise from the following April when your personal allowance will be spread over an entire tax year rather than just part of it.
'Many face mountain of debts'
WHEN Edinburgh student Andrew Johnston, 23, decided to continue his studies after graduating from Aberdeen University last summer, little did he know this would bring him a windfall of £2,000, writes Teresa Hunter.
The endowment due on his history degree should have been paid last April, but as he decided to continue studying for an MSc in finance at Heriot-Watt, payment was deferred.
Now, according to the Scottish Executive, he won't need to pay it at all if Parliament presses ahead with plans to abolish the endowment.
Johnston, now working on a dissertation on private equity funds, received financial help from his family, but he welcomed the endowment move: "Many of my friends have had to work their way through university, and lots of students end up with a mountain of loans and debts."
He moved back home while studying for the MSc to minimise costs, and has worked part-time for a fund management company in Glasgow in order to pay his way.
