What college students and parents need to know about money

With third-level students starting back at college right across the State, we take a look at what students – and their parents – need to know about their finances.

Bank accounts

While free fees remain a given for students, incentives to open a new account appear scarce on the ground. The best offering at the moment must be KBC’s offer of €50 deposited to your account when you open an account with them.

Other options include two new online banks – the German-regulated N26 and the UK-regulated Revolut. Both offer very attractive foreign-exchange transaction rates and good apps, but watch out for hefty ATM charges if you go over the free limit.

Elsewhere student offerings have fallen away. Only AIB and Bank of Ireland now offer student loans or overdrafts, for example, while just a few offer student credit cards. So if you're going to need credit, think about this before you select an account.

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And if you’re a fan of digital wallets, such as Google or Apple Pay, avoid those banks – such as Bank of Ireland – that still don’t offer them.

The main advantage of being a student is, given you typically won’t be faced with day-to-day banking fees, you should feel free to open a number of accounts. Just remember when you leave college in a few years’ time to close them before fees start to bite.

Health insurance

This is something that may be of more concern to your parents; should you keep private health insurance in place for your children during their student years or not?

Health insurance expert Dermot Goode of Total Health Cover suggests that, if you can, you should. Why? If a policy lapses for more than 13 weeks, the student will face waiting periods for pre-existing conditions when they sign up again.

The good news is that insurers now offer discounts up to the age of 25 through “young adult” rates, although the rate of the discount does start to decline quite dramatically after the age of 21.

A word of warning, though; not all plans offer a young adult rate – and this is more common with older plans. You need to be aware of this as your child turns 18, or you could get stung.

For example, Goode points to Laya’s Flex 125 Explore plan. It costs more than €1,700 per adult – but a student of 18 will pay the same fee. A better option is to switch the student to a Simply Connect plan, which costs €550 for a young adult and offers the same hospital cover.

And, once a child is 18, you can always put them on their own policy, at a young adult rate, with another private health insurance provider should you so wish.

Another option is a so-called cash plan, offered by providers such as HSF, which gives cash-back on a host of outpatient (but not hospital treatment) expenses, such as GP, dental and overnight hospital charges.

If you’re not a European student, be aware that you won’t be covered for any free medical expenses, and so getting private cover will be essential.

Taxes

If you haven’t previously worked, you may wonder how much of your income you’re likely to have to give up in taxes when you do start. The good news is that most students can avoid taxes altogether. A combination of tax credits and exemptions keeps lower earners out of the tax net.

"When it comes to tax, if, as a student, you are also in PAYE employment, or even self-employed (for example as a blogger or a guitar teacher), you are entitled to many of the same tax rebates and reliefs as other workers," says Joanna Murphy, chief executive of taxback.com. "So we would encourage anyone in part-time or full-time study to find out what they are entitled to."

For example, if you work eight hours a week, for €10 an hour, you’ll bring in about €320 a month. On an annual basis, this would come to about €3,840 a year, and would mean that you would have a tax bill of zero.

All earnings up to €13,000 will be exempt from tax; you’ll only start paying tax – and even then only the universal social charge – once you pass this limit. Earnings of €13,500, for example, would be subject to a total deduction of €90 a year – or just €7.50 a month.

The only time a student might typically have to worry about paying tax is when they’re in a higher-paid job, such as during an extended work experience placement.

While earnings of up to €16,500 are effectively free of income tax, thanks to the application of tax credits, once you pass this level you will start paying tax at the standard rate of 20 per cent. In addition, once you go past earnings of €352 a week (€18,304), you will also start paying PRSI, at a rate of up to 4 per cent.

And if you work abroad for the summer, remember to look for a tax rebate when you come home. Murphy says countries such as the UK, the US, Canada, New Zealand and Australia are the big ones when it comes to refunds, although students also get refunds from other countries such as Belgium, Japan, Germany, the Netherlands, Denmark and Luxembourg.

And parents: remember you can claim tax relief on student fees, at the standard rate of tax – 20 per cent. Unfortunately, however, this relief doesn’t apply to the first €3,000, which corresponds to the typical student contribution fee.

Budgeting

It’s really never been easier to budget, thanks to the range of apps that, typically, you now get with your bank account. These can keep a close eye on your spending – and even help you to save, such as via Revolut’s Vaults platform, which tops up your savings account each time you spend.

Of course, the key to any successful budgeting strategy is only to spend what you have. If you find it difficult to make your funds last over the course of a month, it might be best to take some action.

If your parents are supporting you, consider a monthly – or weekly – “pay day”, so that they transfer the funds at a fixed point in time, and you have to make your money last until then.

If you’re receiving a grant, or a lump sum that you have to manage for a year, another option is set up two bank accounts (see below). Set up a standing order from one account to the other, and “pay” yourself each week or month.

If you're living in a house-share, when it comes to utilities such as gas, electricity and broadband, try and shop around before signing up. Bonkers.ie is a good site for this, and can help you pick the cheapest deals based on your usage.

And unless you (or your parents) can afford to be, don’t be swayed by the industrial chic decor of the new student apartment blocks that have sprung up across Dublin and some other cities. They cost from about €1,000 a month.

It is still possible to get a more reasonable option through either digs or a house share. Daft.ie, for example, has a bedroom for rent near DCU for €650 a month, and another for €105 a week, while close to the University of Limerick, you can get a digs-style accommodation starting at €80 a week.

Loans

It can be easy to take out a loan, put money on your credit card, or go into your overdraft, but you should make efforts not to do so just to cover everyday living costs. Although it may not be always possible to do so, loans are best kept to a minimum during your student years. With your income probably constrained while you study, they can be difficult to repay.

And entering the jobs market, with the noose of a loan around your neck while you also have to struggle with record rents and maybe the cost of your own car, can prove to be too much of a challenge.

So even if credit is readily available, don’t seek it out unless it’s absolutely necessary. On the other hand, if you do need some kind of loan, remember that building up a good credit history by repaying a loan on time will stand to you down the line when it’s time for a larger loan for a car or a home, so it’s not all bad.

One recurring cost you might find difficult to cover is the €3,000 annual student contribution charge. If this is the case, you could consider a special loan,

With AIB, for example, you can apply for an annual €3,000 loan, drawn down over four years. The loan is available at an interest rate of 8.15 per cent, and may need to be guaranteed by your parents. If you need it for just one year, it will cost you €124.08 to repay.

To repay a loan such as this, you’ll need to make monthly repayments of both the interest – the money the bank makes by lending to you – and the capital, which is the original sum you borrowed. The longer the term, the greater the interest bill will be, as interest is charged on the outstanding amount borrowed, so the longer it takes you to repay this, the greater your loan will be.

The bank also offers an interest-only option of this loan, whereby you can borrow €9,000 in total over four years, and repay only the interest each month. This means that in year one, you’ll repay just €19.45 a month. In year two, it’ll increase to €38.90; €58.34 in year three; and €281.65 in years four to six as required. But remember, while interest-only is obviously attractive while you’re still in college, upon graduation it will be a burden.

Not only that, but it will also increase how much of your own money you have to hand over to the bank over the full period of the loan; the aforementioned €9,000 loan for example will cost you about €11,500 to repay on the interest only basis.

The only other bank offering a specific student loan at the moment is Bank of Ireland. N26, for example, only offers student loans at the moment in Germany and Austria. You could also try your local credit union.

Credit cards

While relying on credit is not to be advised, if you do find yourself in need on a J1 summer trip, or an overnight stay in London, it’s hard to beat the convenience and security of a credit card for covering those unforeseen and potentially unavoidable expenses.

Just try not to rely too much on your flexible friend; it’s easy to build up credit card debt, but much more difficult – and costly – to pay it off. Consider a €1,500 loan. If you repay this at the minimum of about €30 a month, it will take you a whopping seven years and 10 months to repay, based on an APR of 18 per cent. Not only that, but it will cost you almost what you initially borrowed again just in interest (€1,293).

So tread carefully. And remember, once you get a credit card you’ll have to pay €30 government stamp duty each year, so prepare for that deduction on April 1st.

MAKE CASH WHILE YOU LEARN

If you’re looking to make a bit of extra cash, and are happy to do a little bit of promotion for a bank, you could consider the N26 campus ambassador programme. Now up and running on campuses across the State, according to a spokesman, it allows you to earn €20 each time you refer a fellow student to the online bank, as well as additional incentives, such as its premium card memberships.

It also offers the chance of joining the “leaders’ tier”, which offers “select students” the chance to plan initiatives on campus in collaboration with N26, and use this as a stepping stone to a career with N26.