Fancy a new webcam? A free railcard? Or perhaps £100 in cash? If you’re about to become a student, you’re in luck. These are just a few of the offers high-street banks are chucking at the soon-to-be holders of student loans in an effort to get them to sign up to their current accounts. Banks bend over backwards, says Teresa Hunter in Scotland on Sunday, “to entice students aboard in the hope that they will be tomorrow’s high earners and will stay with them when the money starts rolling in”.
So which one do you choose? The answer for most students is not the one offering the best upfront treat, but the one offering the best deal on overdrafts. This year, says Hunter, the largest free overdraft comes from Bank of Scotland, along with its sister bank, Halifax. They are offering interest-free loans of up to £3,000 (although note that this is credit scored, so if you’ve managed your money badly in the past you won’t get that much). The account also charges only 7.2% on further authorised overdrafts, and even pays interest – of 2% – when you are in credit. Most non-students would kill for an account like that.
Next best is the Royal Bank of Scotland, with free money of up to £2,750, but this comes with a sting in the tail: you can’t have any more at a low rate. Anything over this counts as “unauthorised” and will be charged at nearly 30%. Things can turn just as nasty at Lloyds, where there is a free overdraft facility of £1,500 in your first year and £2,000 in your second, but nothing else. Go over these limits and you’ll pay 8.2%, plus a flat £15 a month on top and a daily charge of up to £20, depending on how overdrawn you are.
Better not to run up an overdraft in the first place – particularly given that today’s students have every chance of graduating into a recession in which jobs are hard to come by, debt is hard to refinance and, worst of all, deflation is increasing the real value of their debt every day.
There is a popular myth that debt doesn’t much matter for students – they can just dispose of the lot by going bankrupt. Not so. You are entitled to go bankrupt if you feel the need, but even if you do, your student debt will stay with you until you pay it off. You could, of course, borrow money conventionally, use that to pay off your student loans and then go bankrupt. But as insolvency expert Chris Turner tells The Guardian, it wouldn’t be a good idea. You won’t be welcome in most of the professions as a bankrupt. You’ll have an impaired credit rating for six years (so no mortgage for you). And, of course, you’ll lose any assets you do have (car, furniture, and even any money inherited in the year of your official bankruptcy). It’s just not worth it.