More than a third of uni students max out their overdraft by the end of first year

Our research reveals how students manage their money at university

Every September, thousands of young people head off to university. It’s an exciting time of learning – both academically and new life skills for those living away from home for the first time.

But it can be tricky for students too, especially when it comes to managing money. 

Exclusive research from Be Clever With Your Cash reveals just how many students are relying on their overdraft and what other debt they’re taking on to support themselves. 

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The majority of students use their overdraft

One of the big draws of getting a student account is the 0% overdraft that comes with it. Despite being interest free, an overdraft is still a loan and should only be used with careful consideration – it’s not free money and it needs to be paid back. 

Our research shows that almost two in three (59%) students used their overdraft, with 28% dipping into it during the first term. 

Perhaps more worrying is how quickly students reach their overdraft limit. More than one in 10 (11%) max out their overdraft in the first term while over a third (39%) use it up by the end of the first year. Some 80% get to their overdraft limit by the end of their time at university. 

It’s concerning to see so many students max out their overdraft at university as it leaves them vulnerable to high-cost credit and other types of borrowing. It’s a worrying reflection of student life where high living costs mean many have to use their overdraft just to cover the basics. 

An overdraft is there to help you in tight times, but ideally you only want to use it when you have to and when you’ve got a plan in place to pay it back.

What happens when the overdraft is gone?

Over half (59%) of students said they had a job during university to support their day-to-day living costs. The Bank of Mum and Dad is still in business, funding 44% of students. Meanwhile 28% said other family members gave them money.

But with so many students reaching their overdraft limit so quickly, they’re turning to other types of credit to support themselves. 

Over a third (37%) use a credit card while more than a quarter (26%) have personal loans. A similar number (24%) use Buy Now, Pay Later services while worryingly over one in 10 (12%) have taken out payday loans. 

These short-term loans can be taken out online within minutes and are a really expensive form of borrowing. There’s a risk of getting caught up in the borrowing cycle and in most cases there are better options, such as a 0% overdraft or credit card.

Some types of credit can be complicated and they don’t always make the risks clear. 

There can be problems with Buy Now, Pay Later and if you’re new to credit cards, there’s a few things you should know.  

How are students spending their money?

Accommodation was the biggest expense for 46% of students, which isn’t surprising. The average cost of rent at university is £439, according to Save Our Student, but it’ll be significantly more in London. Students said their largest outgoings after accommodation was food (42%), other groceries (39%) and bills (34%).

But some students say they splurged more on things that may not be as ‘essential’. For example, almost one in five (19%) students say they spent the most money on clothes and accessories while 15% say their largest outgoings were drinks and nights out. 

And 8% said they spent more on bank loan charges and fees than anything else during their time at university. 

A useful way to approach spending is by making a plan. Have a look at your income and outgoings and categorise your spend into needs, wants and savings – or paying down debt. See where your money is going and make adjustments where you need to. 

One popular approach is the 50/30/20 method which allocates 50% of your income towards necessary spend, such as rent, bills and food, 30% towards your ‘wants’ like nights out, dinners and holidays, and 20% towards building a savings pot or paying off debt. 

You don’t have to stick to these percentages, it’s more of a guide, but splitting your spend across these categories you’ve got everything covered. It’ll also give you more control over your money and help you to reach your financial goals during and after university.

Should you get a student account?

Definitely. They’re free to open and they often give you decent perks and an 0% overdraft – which are more generous than other types of accounts. 

Almost half (45%) of students said they picked their student account based on the rewards that came with it, such as a free Railcard, cash or a subscription, however it’s not always the best reason to choose one. 

Four in 10 (40%) chose an account because of the 0% overdraft. This could be a better approach even if you think you won’t need it, as it gives you a safety net. 

Over a third (35%) opted for the student account of their current provider and almost a quarter (23%) went with their parents’ recommendation of a student account.

It can be a bit overwhelming deciding how to pick a student account, but Be Clever With Your Cash is a good place to start. We’ve analysed the best student accounts of 2024, including ones from NatWest/RBS, Nationwide, Santander and HSBC, to help make it a bit easier.