Money Box Live - Monday 9 July 2001

THIS TRANSCRIPT IS ISSUED ON THE UNDERSTANDING THAT IT IS TAKEN FROM A LIVE PROGRAMME AS IT WAS BROADCAST. THE NATURE OF LIVE BROADCASTING MEANS THAT NEITHER THE BBC NOR THE PARTICIPANTS IN THE PROGRAMME CAN GUARANTEE THE ACCURACY OF THE INFORMATION PRINTED HERE.

Tape Transcript by Sentinel Monitoring

MONEY BOX LIVE

Presenter: Paul LEWIS

Guests: Lindsey Fidler, Ahmad Butt, Paul Freeman

TRANSMISSION 9th JULY 2001 1502-1530 BBC RADIO 4

LEWIS Hello, and today we answer your questions on student finance, and for most that means student debt. This year's graduates will owe on average £12,000 and they're also the first who'll repay their loans through the tax system - an extra 9 % off their earnings over £10,000 a year- that new tax starts for this year's graduates next April.

The whole support for students is now given as a loan - and since 1998 students in England and Wales have to pay towards their tuition fees as well - up to £1075 from September. So going to university is an expensive business , some parents are planning ahead and saving up for their children's university education - what are the best ways of doing that?

It's not all bad news, though. There is extra help this year for students with young children - a new childcare package starts in England and Wales from September with grants and help with childcare costs. And in Scotland new students from September this year who are under 25 will be able to apply for a means-tested bursary - or grant - of up to £2000. Rules are slightly different in Wales and Northern Ireland.

Wherever your money comes from you will need a bank account - some are much better than others as banks fall over themselves to sign up tomorrow's graduates. What are the best deals? And if you need to borrow more, what is the best way to do that - overdraft, loan, or credit card?

Whatever your question, call Money Box Live now 08 700 100 444. With me today to answer your questions about student finance are Ahmad Butt - a student debt adviser with the Mary Ward Legal Centre, Lindsey Fidler - a student finance researcher from the National Union of Students and Paul Freeman a financial planner from accountants Pricewaterhouse Coopers.

And the first question is from Jackie in Weston-Super-Mare¿..

JACKIE I'm trying to think of ways to decrease debt in the first place. Are there many sponsorships offered by companies to put people through university and if so what subjects and how do we find out?

LEWIS Is this for you?

JACKIE No it's for my son, although he's only 14 we're thinking about planning ahead.

LEWIS Lindsey Fidler, do companies sponsor students that far in advance?

FIDLER It's usual for companies to start looking at students perhaps at 16 for when they're 18 what I'd suggest is that your son goes to his careers service and starts to talk now about the types of degree he wants to do and his careers service should be able to point him towards appropriate sponsorships.

LEWIS And Ahmad Butt, is that something you think is useful for students - is it a good way to fund that expensive university education?

BUTT Obviously, yes. In my experience the sort of companies that are likely to sponsor you are the sort of ones doing vocational courses rather than the service industry.

LEWIS Thanks for your call Jackie, and the next is from Jenny in Aberdeenshire¿

JENNY I'd like to ask a question about people going to university in Scotland. As you pointed out we do a slightly different system - we do bursaries for people on low incomes, I'm not sure this does a lot to address the level playing field situation but what I want to ask is as well as paying back £2000 worth of fees when they graduate is a 9% graduate tax going to apply in Scotland and also is it applying to people who have already contracted and are in the middle of courses at university as well as people who are just about to go?

LEWIS Lindsey Fidler, let's start first with the new scheme for paying back loans that does apply throughout the United Kingdom - how is it going to work?

FIDLER As you said, the repayment of student loans is the same across all nations now. You pay back 9% of your residual income, above £10,000. For example, if you've got a £15,000 income it'll be 9% of £5,000. You do that through your salary, it will be taken off your gross income by your employer if you're employed or if you're self-employed then it's done through the PAYE scheme.

LEWIS And who does it apply to - this year's graduates or those who've already graduated?

FIDLER Any body who started their course from September 1999 - so anybody who has an income contingent student loan.

JENNY And it is applied until what point..?

FIDLER It is applied until you've paid the debt off. The important point to note about the contingent loans is that the interest starts to accrue the day that the loan is paid to you. Not from the date you graduate. So the interest rate at the moment is 2.6 so basically when you graduate Jenny you will then start to repay once your income hits above £10,000.

JENNY Quite a low limit, lower than the one that was suggested in the whole Scottish review of the scheme¿

FIDLER Yes that is true - the reason the Scottish Executive gave for lowering the threshold was really to do with the graduate endowment which is being introduced from September 2001. Now the graduate endowment is to replace the payment of tuition fees, what will happen there is when a student graduates, they will have a two thousand pound extra debt. Now they can pay that straight off at graduation or they can take out an additional £2,000 student loan and because they had to take out the student loan the Executive decided to keep the repayment threshold at the same level as the main student loan.

LEWIS Thanks for your call - hideously complicated. And just let me check it's students who started their course in September¿.???

FIDLER Any student who started their course from September 1998 will have an income contingent loan¿

LEWIS 1998. I think you said '99 earlier and I just wanted to clarify that - so it's this year's graduates after a three year course¿.

FIDLER Yes

LEWIS Let's move on now to Ralph in Brighton..

RALPH My son left university this year but unfortunately he dropped out- he didn't graduate¿..he was in his third year but it was a second year retake..so he was in the third year of what would effectively be four years. He started in September 98. So he's left without getting any degree or graduating at all - is he still liable for that loan and it might be some time before he even hits the £10,000 threshold barrier¿so we're slightly worried.

LEWIS Has he got debt as well as the loan?

RALPH I think he has a little bit of debt - yes.

LEWIS Ahmad - this must be fairly common - people come out of university - they've got debt they may not have a job - what can they do about it?

BUTT What I would say is that your son has debt, if he doesn't have an income essentially you can't get blood out of a stone. When you're looking to repay the debt, because obviously you want to ensure your credit rating remains above board and OK, then you're looking at making some sort of arrangement with your creditors and really it's focusing on your son's ability to pay before you make any arrangements to pay. My suggestion would be to get as much of the contractual deferment as possible, once that's over then go through the standard stages of money advice, looking at your income, expenditure- this is your son's by the way - and then making some sort of proposal to pay back the debt to the various creditors.

LEWIS And Lindsey Fidler - it's a bit different for the student debt isn't it because that will still be a student loan, it'll still go on clocking up at the very low rate of interest¿?

FIDLER Yes, I'm afraid whether you graduate or not you still incur the student loan debt, but if your income doesn't hit £10,000 then your son won't be required to repay it. He will be assessed on an annual basis on that.

RALPH You say that affects his credit rating. If further down the line he wants to get a mortgage or a loan that would probably be a big mark against him would it??

FIDLER Well obviously if he goes for a mortgage his level of debt will be looked at.

LEWIS But the fact he hasn't repaid his student loan doesn't affect his credit rating??

FIDLER Not that I know of.

LEWIS In the sense of you don't pay off a credit card or a loan. Ahmed does it ¿.??

BUTT It depends whether the student loan company take any action against you. If they get a CCJ then obviously that'll be recorded..

LEWIS But if you're lawfully not paying it off because your income is below £10,000 that's fine..?

BUTT Yes

LEWIS Let me move onto an e-mail now¿from Marge in Newcastle¿.we have a six year old who we hope to go into higher education when he's 18..how do you advise us to prepare financially to support him? Paul Freeman¿??

FREEMAN I would say that in a case like this where the child is six, so there are at least 12 years before starting higher education, that there's adequate time to invest in one form or another to provide for the fees. Probably you want to think about four things. You want to make the investment as tax efficient as possible, and that's certainly going to depend on your own take position, you want to be sure that the funds are accessible when you need to pay the fees and the cost of education - so you need to think about a fund that runs over that period - you've got to make sure you're earning competitive returns, otherwise you'll lose out and, I guess for most people in this situation, they want the investment to be reasonably secure. But certainly with a period of 12 years or so you could look to invest in assets that include equities as well as cash and fixed interest.

LEWIS So stocks and shares as well¿and there are advisors who will advise about this aren't there¿people who specialise in childrens' education..?

FREEMAN There are specific advisors who offer these services, both for people who are looking to pay private school fees as well as people who are then looking to go on and support their children in private education.

LEWIS Next caller now - who's also called Ahmad and he's in Bracknell..

AHMAD Mine is a very special case and a bit difficult to understand. I have actually designed a course for myself at PHD level, the university has welcomed it. I do need desperately, scholarship money or a bank loan. To pay it back is not a problem because at the end of the course there are numerous intellectual properties, patents, copyrights etc that will take care of all that¿..I'll be 58 in September

LEWIS Lindsey Fidler, where do you go about getting money if you're 58 to go to university ??

FIDLER For post graduate courses there is no statutory support so in terms of an income contingent loan that graduates would get, I'm afraid you wouldn't qualify. You wouldn't qualify on age as well, I'm afraid. Because the upper age limit for student loans is 54, on the grounds that you sign for going back into the workforce. One of the main loans that is given for post-graduate study is development loans, which is something you could look into, which is a government sponsored loan, it's available through four commercial banks, Barclays, Co-Op, Royal Bank of Scotland and the Clydesdale Bank. The Government pays the interest rates while you're studying but the issue for you is that it's usually up to two years worth of study, it would have to be something that you would do on top of finding other means of support.

LEWIS Is there any charitable money that somebody might get??

FIDLER It's possible to do that. I think the first place to start would be the institution, often institutions do provide scholarships.

LEWIS The university¿

FIDLER That's right.

AHMAD Actually the course is to do with public health and hygiene so it has got a charitable side to it in terms of controlling the travel of infections globally, I would have thought there would be loads of scope from Red Cross and hygiene charities..

LEWIS Lindsey¿where do you find out about charitable grants¿

FIDLER There are a number of websites. Fund-a-finder and Moneysearch both list charities and educational trusts who might be interested in sponsoring you. There's another website called Prospects which again lists sources of post graduate funding including professionally based funders so again it's worth you having a look at those.

LEWIS Let's talk to Malcolm in High Wycombe now, in a way it's a similar problem that you've got¿

MALCOLM I'm 63 and I wish to study law starting in September, I'm a chartered engineer and I was made redundant and of course in engineering there's hardly any work so I took an Access course to retrain in business and law. I've got a modest pension and I'm supporting my wife who's retired and Bucks won't give any assistance if you haven't got ten years working life after you finish your qualifications¿

LEWIS Yes, I don't think it's just Bucks is it Ahmad¿

AHMAD Well I'm not quite sure¿my approach to this problem would be to think how about the Open University. So instead of thinking of a full time university course at college how about doing the same thing but from home?

MALCOLM I had thought of that but it's quite a lengthy period, three or four years¿.

LEWIS I suppose there is a question Lindsey Fidler, how much working life someone would have at the end of that¿what are the rules for getting student loans for older people¿

FIDLER The age limit on receiving the student loan is actually 50 - you can get a student loan if you're aged 51 to 54 as long as you sign a declaration to say you intend to return to work and I think Malcolm you're in the age bracket where the government feels that you won't be in a position to repay the whole student loan in your working life.

LEWIS And once you reach pension age the debt lapses anyway doesn't it¿

FIDLER That's right¿.your debt will be cancelled when you retire

LEWIS It does seem very unfair, in the past education could be for your own enlightenment as well as for work but now that seems to have gone..the thought just occurs to me - I wonder how this fits in with European anti-discrimination rules¿we probably can't go into that hear but possibly a thought for you in the future Malcolm. Let's talk to Rosemary who's calling us from Redhill¿.

ROSEMARY My husband and I have two children who're both going off to university at the same time because one has been on a two year gap year and she's now decided she's going to go to university. All the forms I've found terribly confusing - are the fees going to be the same? Will I have to pay two lots of fees, in other words, and is it an annual thing or a one-off payment?

LEWIS Well I'm afraid fees are every year aren't they Lindsey Fidler?

FIDLER I'm afraid it's an annual fee so for September 2001 the fee is £1075 but that will go up next year but the good news for you is that you will only be assessed as if you have only one child who is going to university , so you'll be assessed for one lot of contributions. Your local education authority can either spread your contributions over both of your daughters or they might put it on one. It's usual for them to spread it though.

LEWIS And by contributions you mean the amount that Rosemary as a parent is supposed to pay towards¿..which just reduces the loan in effect doesn't it..?

FIDLER Well the means test is first applied to the tuition fees, so you will first be assessed for contributions up to £1075. After that any excess contribution will go off the means tested part of the student loan, it's 25% of the student loan amount.

LEWIS I must say I've got thoroughly confused over the last few days about this¿¿is there a place where Rosemary can go and get face-to-face advice, that's what many people in her position need - help with those wretched forms¿

FIDLER It's a very complex system now. Firstly NUS offers, what we hope are clear information sheets on the means testing process which we're more than happy to lend out to people and send out to any inquirer. Citizens Advice Bureaux are familiar with this system and will give advice on the student funding system. The most specialist advisors are student advisors who are based within institutions or student unions quite often though they will advise existing students other than potential students.

LEWIS I think parents faced with those forms for the first time, especially when you're in a slightly unusual position like Rosemary¿¿

FIDLER Yes¿..the basic principal is you've got to look at the funding system, you've got a means tested tuition fee, you've got means tested student loan, you will go through a means test which will first be applied to the tuition fee and then the loan and you will only make contributions as if one student was going to university. We have got the factsheets on our website.

LEWIS And that will certainly be on our website. Let me go back to another e-mail now - this is from Elizabeth in Brighton, she's 29 and she's going to do a diploma full time. How can she get financial help? She's looking at all the options about bank accounts and things like that. Paul Freeman, what are the choices for students who want to find the best deal for themselves??

FREEMAN Luckily for students most banking institutions are quite keen to have students as customers because of the obvious benefits in future for them and there are various things you have to think about but if you're going to take out a specific student account which can have a lot of attractions for students, for instance a more generous overdraft policy, the availability of free overdraft, the availability of preferential rates on subsequent overdrafts, then there are a lot to select from. Most of the major banks will provide these facilities for students. Sometimes its difficult to choose , I would say the most important thing is the cost of the overdraft facility, bearing in mind that a lot of students are going to go into debt ¿

LEWIS And some of them have a zero percent interest rate on that up to a certain amount don't they¿.

FREEMAN A number of the major institutions have zero interest rates on overdrafts, anything from a thousand pounds up to nearly two thousand pounds, they tend to scale up over time, and there will also of course be other features which might be attractive. For instance if you're a student you want to get hold of probably, debit cards, credit cards - they will be available maybe more easily if you have an account with a particular institution than would be the case otherwise.

LEWIS And how can people find the best deal for students¿how can they find where is the best bank account, the best overdraft rate¿

FREEMAN There are a number of publications and websites around and I know some of them are going to be put on the BBC website later but in particular there is Moneyfacts publication which has a lot of information specifically on student accounts and there's a very useful website called www.namss.org.uk - what that will give you is a list of all the student accounts, graduate accounts, overdraft facilities that are available specifically for students. You can actually search through that website, search for the different information by category and get some very useful data.

FIDLER Namss also lists whether the bank will provide specialist advice for students, with the accounts. I think that can quite often be an important element of the student accounts if you're trying to negotiate larger overdrafts for example or if you think you're going to go into the red.

LEWIS Yes I must say, call me old-fashioned but the thought of people leaving university with £12,000 debt fills me with horror and I think it also fills Janice with horror¿.Janice your question¿

JANICE My question is how my eighteen year old son, who's now nineteen, was able to open up three accounts, with three major banks in a local town then have overdrafts on all three and at least one credit card. He's got so many accounts we don't know if it was one credit card or two.

LEWIS And do you know how much he's in debt ?

JANICE Well Bank of Scotland is twelve hundred, the Halifax was eight hundred and the Clydesdale Bank is in excess of four hundred.

LEWIS And he had a student loan as well presumably¿

JANICE Two student loans, that's seven thousand pounds over two years.

LEWIS Ahmad, you must get calls like this or people coming to you with problems like this¿.how does it happen?

BUTT It's difficult to answer that question without seeing the applications form Janice. I'm not quite sure what your son would have told the various banks when he was opening the accounts..

JANICE I don't know either of course.

BUTT We've just heard from the other two guests about how easy it is to open up and where to get the information from so there is an incentive if you're a student and don't have too much money to go and borrow as much as you possibly can without giving too much thought to how you're going to repay it so I'm not sure there is an actual answer to your question about why is it so easy to get into debt, but what do you now do about it that is the better question¿.is your son in a position to repay anything at this stage or is he still studying?

JANICE Absolutely not, he's on holiday and I'm taking care of some of the payments.

BUTT Well, legally speaking, you don't have responsibility to take on board those debts, the debts are his. What I would suggest is pop down to the local Citizens Advice Bureau with him and get him to take on board the advice they give..

LEWIS So he's going to have to cut back on his spending next year probably, but I must say the life of a student is nowadays a life in debt. How worrying is that Lindsey¿?

FIDLER I think it's very worrying. One of the core skills that students have to have now is money management and I think that's new since the student loan has been the main source of support really. For some it's the first experience of having to budget on a very low income which is a skill in itself, but when that is linked to a debt rather than a grant, students can get into very serious problems.

LEWIS Ok Janice, no complete answer there but certainly try and make your son see what's going on and try to limit the borrowing in the next year or two of his course. Let's talk to Joyce now in West Bromwich. Joyce, what's your question..?

JOYCE I'm a single parent with three children with an earned income of about £29,000, my eldest boy who's at present 17 and in the sixth form, will be going to university 2002. I understand there are some people who don't have to pay student fees but I think I'm going to be outside that¿.

LEWIS Let's ask Lindsey, quickly as we are a bit short of time. What level do student fees kick in? Will they affect Joyce?

FIDLER Joyce, on the current means test with an income of £29,000 you would have to pay £992 towards your son's tuition fees, by the time he's goes of course that will probably be reduced. It's worth you knowing though that as you have two other dependent children there'd be £79 taken off your income for each dependent child so your actual contribution would probably be a bit less than £992.

LEWIS In a word, no concession because Joyce is a single parent?

FIDLER Not many I'm afraid.

LEWIS No, ok, thanks for that Lindsey, and thanks for all your calls, that's all we have got time for. My thanks to Lindsey Fidler from the National Union of Students, to Ahmad Butt from Mary Ward Legal Centre and of course Paul Freeman from PricewaterhouseCoopers. If you'd like details of anything raised in the programme you can ring the action line. The number is 0800 044044, calls are free on that number. You can visit our website, www.bbc.co.uk\moneybox -updated shortly, our e-mail address is [e-mail], I'm back at noon on Saturday and I'll be taking more of your calls on Moneybox Live at three o'clock next Monday afternoon.