Student finances

Adam puts your questions to Amanda Davidson

Amanda Davidson from Charcol Holden Meehan answers your questions about managing money during and after your studies.

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Samuel Bennett asks: "Do you know of any low risk but high interest investment where a student can put some money away?"

Low risk is a relative term and means different things to different people. The main question is how long Samuel is prepared to set aside the money for.

If it is short term then he needs to invest in a deposit account, but if he can afford to leave the money for longer - five years ideally - then lower risk investments would include with-profits funds, distribution funds, corporate bonds and commercial property funds.

Sarah from north Yorkshire describes herself as being "swamped in debt".

She graduated three years ago and is unemployed. She owes about £35,000 in student loans, credit cards, graduate overdraft and graduate loans and is extremely keen to explore the idea of bankruptcy.

In two weeks she starts a traineeship to be a chartered accountant. Is bankruptcy a good option for her and would it affect her job?

Sarah should try to avoid bankruptcy especially as she is at the start of her professional career.

It will affect her ability to take out loans and a mortgage and will be a severe disadvantage.

It seems to me that Sarah's financial situation is taking a turn for the better as she is to start a traineeship that will lead to her earning well when qualified and therefore better able to repay her debts.

What Sarah needs to do is firstly prepare a ruthless budget for herself to see what surplus income she will have each month.

She then needs to examine the rates she is paying on her debts and see if she can consolidate them into one with a lower interest rate.

Her employer may offer a loan facility, possibly interest-free, that could help. If the repayments are higher than the surplus cash, she needs to talk to her lenders and explain the position and come to an agreement with them. Most lenders prefer some payments rather than none.

David Shannon says he's seen adverts from private companies offering student consolidation loans, claiming they can reduce monthly repayments by up to 54%.

Some offer interest rates as low as 1.6% with no credit check and no application fees. What do you think of these? Aren't student loans themselves meant to be the lowest cost debt?

I suspect that the ads are for people who have left their student days behind and have debts that need to be managed.

David is right that student loans are low cost debt. With any offer that looks too good to be true it is important to study the small print and make sure that interest rates don't hike up after a period of grace making the debt expensive.

Any penalty clauses for moving the debt need to be explored, too.

Sharon Hirst from west Yorkshire says her nephew is 18 and has no parental support. He's got £15,000 that he'll need when he goes to university in a year's time. Where should he put it in the meantime?

As Sharon's nephew has a short timescale he needs to invest the money in a high interest account so he can draw on it next year.

Both the Coventry and Halifax offer 4% gross on their internet accounts. ING Direct offers 4.02% gross.

He should also consider a mini cash Isa, where no tax is paid on the interest (he may pay tax if he earns in a tax year more than the personal allowance, currently £4,615).

Portman and Northern Rock offer 4.1% but there are introductory bonuses.

Peter is in the third year of a business studies degree at Lancaster University. He and his friend have amassed £9,000 in student loans which they don't need and want to invest riskily.

They don't think they'll need to pay the money back for five or six years. Any ideas?

As Peter and his friend have £9,000 to invest over five or six years and are prepared to take a risk they should consider investing in shares.

These will be volatile but given the timescale and risk profile would be appropriate.

However, rather than buy individual shares I recommend Peter buys a unit trust, which is a collection of shares. That way if one share performs badly they are not overexposed to its fortunes.

Also the investment can be sheltered from tax via an Isa for up to £7,000 in a tax year without additional cost.

A UK equity investment would suit as a start.

One student writes: "Over my three-year course I intend to invest my loan every year - about £4,000.

"What's the best kind of account for this? I'll then probably use it for a deposit on a house when I graduate."

This money needs to be invested in cash because of the short timescale. Have a look at the accounts I've already recommended.

It's definitely worth considering a mini cash Isa.

Tim from Bournemouth says: "If as a student you work part-time, what happens about tax? I want to avoid going on to an emergency tax code."

Income up to the personal allowance (currently £4,615) is tax-free so tax will only be payable over this amount.

This does include all income, however, which is interest from bank accounts, dividends from shares as well as income from work.

Discuss this with any employer to make sure the correct codings are used otherwise you will have to reclaim the tax.

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The opinions expressed are Amanda's, not the programme's. The answers are not intended to be definitive and should be used for guidance only. Always seek professional advice for your own particular situation.