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For many young people across the country, heading off to university is one of the biggest lifestyle changes they’ll face. New friends, new surroundings, new independence and often for the first time, new financial responsibilities.

With student loans, maintenance costs and the day-to-day expenses that come with living away from home, managing money at university can soon become very overwhelming. That’s why many banks and building societies offer financial products specifically designed for students, like interest-free student overdrafts.

They can be useful tools when managed carefully and responsibly, but it’s crucial to understand how they work, and more importantly, what they mean for your finances once you graduate.

What is a student overdraft?

A student overdraft works in the same way as a normal overdraft, but many banks offer them interest-free during your time at university.

This means you can spend more than you have in your account, up to a set agreed limit, without paying interest during the interest-free period.

For a lot of students, this can be a safety net when money is tight. It could help with covering an unexpected bill or helping you get through to the next student loan payment. But it’s important to remember you’re still borrowing, and once your studies end, the terms of your overdraft usually change.

Banks often start charging interest on anything you still owe, which can quickly become expensive if it isn’t repaid.

What about Student Finance in England?

It’s also worth mentioning that student loans work very differently to overdrafts and credit cards. If you’re studying in England, your tuition and maintenance loans are provided through Student Finance.

Unlike commercial borrowing:

  • Repayments are based on income, not what you owe. You only repay if you earn above a certain threshold (currently £25,000 a year for Plan 5 loans, and £21,000 for postgraduate).
  • You’ll pay either 9% of your income over the threshold if you’re on Plan 1, 2, 4 or 5 undergraduate loans, or 6% of your income over the threshold if you’re on a Postgraduate Loan plan.
  • The loan is wiped after 30 years. This means that anything you haven’t repaid by then is written off.
  • It doesn’t affect your credit file. Having a student loan won’t appear on your credit record in the same way other borrowing does.

For these reasons, a student loan isn’t considered a conventional form of debt. Think of it more like a graduate contribution system that only kicks in when you can afford it.

This is very different from overdrafts and credit cards, where repayment expectations are fixed and balances remain outstanding until fully cleared.

You can read the government’s official advice on repaying your student loan here.

What are common financial mistakes students make?

Managing money at university is a learning curve and it’s easy to make small mistakes that grow into bigger issues over time.

Some of the most common pitfalls include:

Not budgeting properly

It can be tempting to treat your first student loan payment as a windfall, but a large part of that money often needs to cover rent and bills.

Without a budget, it’s easy to overspend early on and find yourself short later in the term.

Using overdrafts as ‘free money’

Nights out, ordering takeaways after lectures or filling up the car to take friends on road trips in the summer. These can all feel like part of student life and can be some of the most fun experiences you can have during your time at university. But if you’re leaning on your overdraft or credit cards to join in, it’s easy to end up with a growing balance.

Sometimes, it’s hard to say no, especially when everyone you know is going somewhere or doing something, but borrowing to fund social plans can leave you paying for things long after the night or event has ended.

Relying too heavily on takeaways and convenience spending

Food deliveries, subscriptions and impulse buys might not feel like much at the time, but they can eat into your budget faster than expected. Everything soon adds up.

Forgetting about recurring costs

Gym memberships, streaming services or travel passes all add up. If they’re not factored into your budget, they can take you by surprise when your balance looks lower than expected.

Missing payment deadlines

Whether it’s rent, bills or credit repayments, missing a deadline can lead to charges and make it harder to stay on track.

Practical money tips for students at university

Budget from the start

It’s important to work out what money you’ll have coming in (such as your maintenance loan, part-time work or any bursaries you’re entitled to) and what needs to go out (like rent, bills and food).

Having this overview makes it easier to see what’s left and where you might need to cut back.

It’s also worth thinking about your housing costs.

When you’re in university halls, rent is usually paid over 41 to 45 weeks of the year. If you move into private housing or private student accommodation after your first year, you’ll often need to pay for 51 or 52 weeks instead.

That means accommodation costs can rise significantly, so it’s important to factor this in when planning your budget for future years.

Factor in hidden costs

It’s easy to plan for the bigger expenses like rent, food and travel, but it’s often the smaller costs that catch students off guard.

Laundry is a good example. At some universities, a wash and dry can cost more than £4 and, with limited space in student rooms for drying clothes, using the machines is often unavoidable.

If you’re washing clothes, bedding and towels weekly, that can mean two or more loads, which quickly adds up over a term.

These hidden costs are easy to overlook when you’re making a budget. Setting aside a little extra for them can help you avoid being caught short later and means you’re more prepared for the day-to-day realities of student life.

Choose the right student bank account

Even if you don’t plan on borrowing, it’s still worth taking time to choose the right student bank account.

Many providers offer extras alongside their standard features, such as railcards, cashback on purchases or vouchers for popular services like Deliveroo and Uber Eats.

Sometimes the best student bank account is not having one at all. It’s important to remember that student accounts aren’t compulsory, so if a standard account suits your needs better, you don’t have to open a student-specific one just for your studies.

Have a plan if you need to borrow

If you know you’ll need to dip into your overdraft or use credit, think ahead about how you’ll repay it.

Even a small monthly repayment during term can help reduce the balance more quickly.

Use banking tools

Most banking apps now offer features like spending breakdowns, alerts when you’re nearing your overdraft and reminders about payments.

Using these can help you stay in control. Some even let you use round-ups, allowing you to save money without you really noticing.

Keep track of deadlines

Whether it’s your rent, a subscription or a credit card bill, missing payments can be costly.

Setting up reminders or direct debits can help you avoid late fees and protect your credit file.

If I’m a parent, how can I support my child at university?

It can be a big adjustment watching your child manage money for the first time.

While you may not want to step in too much, there are ways you can support them:

  • Start the conversation early: Talk openly about budgeting, borrowing and what to expect before they leave home.
  • Share real-life tips: From meal planning to shopping around for deals, your experience can be a valuable guide.
  • Encourage independence: Let them make their own financial decisions but reassure them that support’s there if things don’t go to plan.
  • Look out for signs of stress: If your child seems worried or anxious about money, encourage them to talk about it.

I need debt advice at university: How PayPlan can help

Managing finances at university is a learning curve and it’s normal to make mistakes along the way. But if you find that overdrafts, credit cards or other borrowing start to feel unmanageable, it’s important to know that support’s available.

University should be an exciting time of growth and opportunity. By understanding how products like overdrafts, credit cards and student loans work, and by keeping an eye on how they’re used, you can avoid unnecessary stress and keep your finances on track.

If things start to feel difficult, reaching out early for advice can make a big difference.

You don’t have to manage money worries alone, and support is always available.