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Starting university brings a lot of firsts. You might be moving away from home, meeting new people and managing more of your own money.

It can be exciting, but it’s also a big change. Rent, food, travel, course materials and social plans can add up quickly.

Whether you’re about to start uni, or you know someone who is, a little planning can make money feel more manageable. This guide explains how to budget, how student overdrafts and loans work, and where to get support if borrowing starts to build up.

What is a student overdraft?

An overdraft acts as a credit buffer for your current account. It’s important to remember that any time you go into your overdraft, you’re borrowing from the bank. Arranged Overdrafts are pre-agreed overdrafts with your bank, and they usually let you avoid extra charges if you stay within your limit, but you’ll still be subject to interest.

Sometimes, you may spend more money than is in your bank account, without having an agreed overdraft. When this happens, you’ll usually have to pay fees on top of interest.

However, many student overdrafts are interest-free while you’re studying. This means you don’t pay any extra fees or interest charges to borrow the money during your studies.

It can help with an unexpected cost or make your money last until your next student loan payment. But it’s still money you’ll need to pay back.

When you graduate, the terms of your account may change. You might need to reduce what you owe each year, or the bank may start charging interest.

Before opening a student account, check:

  • how much you can borrow
  • how long the overdraft stays interest-free
  • what happens after you graduate
  • whether you’ll need to start paying it back straight away

An overdraft can be a useful safety net but try not to use it as part of your regular budget.

How do student loans work in England?

Student loans work differently from overdrafts, credit cards and other borrowing.

If you’re studying in England, you may get a Tuition Fee Loan to cover your course fees. You may also get a Maintenance Loan, which helps with living costs like rent, food and travel.

You don’t usually start paying a student loan back while you’re studying. Once you’ve finished your course, repayments are based on what you earn, not on the total amount you borrowed.

Most new undergraduate students in England are on Plan 5. You’ll pay back 9% of anything you earn over £25,000 a year. If you have a postgraduate loan, you’ll usually pay back 6% of anything you earn over £21,000 a year. For most plan 5 loans, you’ll have to pay 4.1% interest on anything you borrow.

These amounts can change, so it’s worth checking the latest information on the GOV.UK student loan repayment page.

A student loan is still borrowing, but it doesn’t work like a credit card or overdraft. There isn’t a fixed monthly payment. If your income goes down, your repayments will usually go down too.

It also doesn’t usually show on your credit record. Your credit record is the information lenders use to see how you’ve managed borrowing in the past. But lenders may ask about student loan repayments when deciding what you can afford, such as when you apply for a mortgage.

For most people on Plan 5, anything left to pay is written off 40 years after the April they were first due to start repaying. GOV.UK explains when different student loans are written off.

Common money mistakes at university

Spending too much early on

A student loan payment can look like a lot of money when it first arrives. But it may need to last for several months.

Before you spend anything, work out how much you’ll need for rent, bills, food and travel. Then divide what’s left by the number of weeks until your next payment. This can help you see what you can realistically spend each week.

Treating an overdraft as free money

It can be tempting to use an overdraft for nights out, takeaways, clothes or trips away. But if you’re using it to cover regular costs, it can become harder to pay back later.

You don’t need to say yes to every plan. Borrowing to keep up with friends can mean paying for one night out long after it’s over.

Forgetting smaller costs

Subscriptions, gym memberships, phone contracts and streaming services can all take money from your account each month. So can laundry, course materials, society fees and travel home.

They might not feel like much on their own, but they soon add up. Include them in your budget from the start.

Missing payment dates

Missing a payment for rent, bills or credit can lead to extra charges and affect your credit record.

Set reminders for important dates. You could also use a direct debit for regular bills. This means a company takes an agreed payment from your bank account automatically.

Money tips for university students

Make a simple budget

Start by listing the money you expect to have coming in monthly. This could include student finance, wages from a part-time job, bursaries or support from family.

Then list what needs to go out, including:

  • rent and household bills
  • food and toiletries
  • travel and phone costs
  • course materials
  • subscriptions and memberships
  • any overdraft or credit card payments

Whatever’s left is what you’ve got for social plans, clothes, hobbies and other extras.

You don’t need a complicated spreadsheet. Your notes app, banking app or a simple budget planner can work well. The important thing is to keep checking and sticking to it.

Plan for housing costs

If you live in university halls, your rent might cover around 41 to 45 weeks of the year. Private housing often has a contract that lasts 51 or 52 weeks.

This can mean your rent goes up after your first year. Before signing for a new place, check how long you’ll be paying rent for and make sure it fits your budget.

Choose a bank account that works for you

Some student accounts offer railcards, cashback or vouchers. These can be useful, but they shouldn’t be the only reason you choose an account.

Look at the overdraft rules, any fees and what happens when you graduate. You don’t have to open a student account, either. A standard account might suit you better.

Use your banking app

Most banking apps can show you where your money is going and alert you when your balance is low. Some offer round-ups too, which means they round up what you spend and move the spare change into savings.

It’s a simple way to see what’s happening with your money and put a little aside.

What if I need debt advice at university?

Learning to manage money takes time. If an overdraft, credit card or other borrowing is becoming hard to keep on top of, getting advice early can help.

We offer free debt advice based on your situation. You can get in touch online, or call us free on 0800 316 1833.

 

*PayPlan’s advice is free, but some solutions may incur fees.