As a new generation of students prepares to head off to university, will the costs leave them regretting it?

Across the UK 37 per cent of under-35s who took a degree now say they regret doing so because of the debts they took on, and 49 per cent say they believe they could have got to where they are now without it.

But in Scotland, according to the latest Aviva Family Finance survey, only seven per cent are sorry, though 46 per cent are not convinced they really needed the degree.

Almost one in five UK millennials who went to university are hoping their student debt will be wiped out completely in future.

Although students in Scotland get tuition fees paid, maintenance funding has shifted from grants to loans, with loan funding jumping from £175m to £336m last year. The average new student is likely to graduate with £20,000 of debt, according to Audit Scotland.

But Tom Stevenson, investment director for Personal Investing at Fidelity International comments: “It’s likely that a significant proportion of students won’t re-pay their loan in full. If you think you may work in a lower paid job, or will take time off to raise a family, it may be that you will never pay as much as the full up-front cost of your degree.”

Stevenson points out: “Student loans are different from other types of borrowing. For me, a more accurate way of thinking about this is as a ‘graduate tax’. Just as higher earners pay a higher rate of income tax, so too now do graduates.”

Graduates only begin paying their loan off when they start earning £21,000 per annum or more, at which point they pay interest and/or repay capital at nine per cent of their income above this threshold. But new loans are charged at retail price inflation plus three per cent, currently 4.6per cent.

“For lower earners this means that the amount of interest they pay each year may not even match the amount by which the outstanding loan rolls up,” Stevenson says. “As a result, many people may never repay the full amount of the loan.”

Meanwhile the annual banking beauty parade is under way, trying to entice students to become long-term customers – the big banks know only too well that 70per cent of their customers are unlikely ever to switch their account once they’ve started.

Andrew Hagger, independent analyst at MoneyComms, says: “You are seen as the high earner of tomorrow so they’ll try to entice you with all sorts of goodies to sign up for their student bank account.

“However for most students being able to borrow as much as possible interest free will prove to be the biggest financial benefit.”

LLoyds, RBS and Santander all offer a maximum of £2,000 interest-free overdraft whereas Barclays and HSBC are more generous, with a free limit of up to £3,000. But most banks start you off on £1500 (the Cooperative is £1400) and then not all at once. Bank of Scotland, which has a smart mobile banking app, will move you up from £1500 to £2000 after the third year.

Nationwide this week joined the party with its first ever student account. It quotes an overdraft of up to £3000 and exclusive access to a graduate account with a continuing free overdraft.

Hagger says: “You are not guaranteed the interest free maximum with any of the banks as you have to apply for the overdraft, however it’s a sobering thought that the extra £1,000 interest free from HSBC or Barclays would end up costing you £154 per year with Lloyds Bank – a difference of more than £460 during a three year stint at university.”

Jody Baker, head of money at comparethemarket.com, adds: “Remember these have to be pre-agreed with the bank in order for them to be free, and there are bank charges if you exceed your agreed overdraft.” it would cost you £5 a day up to £50 at Santander, 1.82per cent a month plus a £28 fee at Halifax.

The standout giveaway on the market is the free four-year 16-25 railcard from Santander, worth £90, which could swing the deal for anyone with a distance to travel to university. RBS competes on transport too, with a four-year National Express coach card.

Rachel Springall at Moneyfacts says: “Another thing to bear in mind is the provider’s digital banking capability. Students don’t have to choose a bank that’s nearby or on campus because they won’t always offer the best choice for them.”

Whenever you are able to stay in the black, you really want your money to be working for you, especially with the current bombed-out interest rates. Santander’s 123 Student Account is offering three per cent on balances between £300 and £2,000. However you must ensure that you are able to credit the account with a minimum of £500 each month. Similarly, HSBC is offering two per cent on balances up to £1000 in the first year of university, and TSB will pay five per cent on balances up to £500. Nationwide will offer one per cent on balances up to £1000.

CASE STUDY

Harry Mackenzie from Glasgow relies on a summer job to balance the books after running through his student loan and a £1500 overdraft from Santander’s student account. He switched his university course after the first year, from civil engineering in Edinburgh to construction and quantity surveying at Robert Gordon, so will benefit from the free railcard. He says: “At first I decided not to work, but the loan I got didn’t cover my accommodation because I was in halls. All my mates rely on overdrafts in term times and we spend our summer trying to pay it all off and get some meaningful saving.” Harry has been working on a construction site but also coaching in a children’s camp, and also finds time for piping. “I get asked to do weddings, “ he says. “I’ll be putting my card round in Aberdeen.”