If there is one time in your life when you can justify borrowing, it's when you are a student. But there is cheap borrowing, not-so-cheap borrowing and borrowing to be avoided at all costs when you are a student. It's wise to learn the difference before you arrive at university. 

Student Loans

Payable at the rate of inflation - which effectively, though not practically, means interest-free - student loans should be the borrowing of first choice when you get to university. They are not only cheap, but the Student Loan Company, which issues the loans, does not search your credit file on application. This means that, as long as you are taking a degree, you should be able to qualify for one student loan for every year of study - in spite of that catalogue bill that you forgot to pay for six months.

The other major upside of student loans is that they are not repayable until you finish your studies. Repayments also only kick in when you start working - and even then are deducted at source (before your wages get to you). This actually makes it difficult to fall into arrears, which protects your future credit record when it comes to qualifying for car loans and mortgages.

Student loans are taken out by 90% of students, according to the National Union of Students.

Student overdrafts

Overdrafts that are part and parcel of student bank accounts are probably next on the borrowing menu. This is because they are also interest-free to a given limit and non-repayable while studying. But, if you exceed your agreed limit, prepare to be hit with extortionate interest rates on the surplus - more than 30% APR - as well as a slapped wrist in the form of one-off overdraft charges that could amount to £25 a pop. Students who go over their agreed limit with too much nonchalence also run the risk of having the whole thing referred to their bank's debt-collection department, and this can be cripplingly expensive. 

When you leave university and start working, your bank will not necessarily switch your student account automatically to a graduate account -  you may have to ask for it. A graduate account is designed to 'rein back in' the interest-free overdraft limit year by year. This tiered form of repayment can be seen as a 'gentle lowering' into the hotter waters of the 'real world', where no commerical institution is going to do you any favours. In fact, it should become crystal clear why your bank seemed so generous in the first place. 

Credit cards 

It's fair to say that credit cards are probably best avoided by students altogether - well, at least those who can possibly afford to live without them. While limits on student credit cards will be low, that is the only soft landing you will get. Interest rates are as unforgiving as those on fully flegded non-student cards - in the region of 18% APR - so it's crucial that you do not run up a balance on a credit card and simply leave it to fester. What's more, this will have to be paid monthly, even during your time at university. If you are not careful, you could end up paying back nothing but interest for your entire student life, having completely forgotten what you spent the money on. And if you fail to make the minimum payments on time, your credit rating will suffer for a lot longer than the  time you spend at university.

Credit cards are, however, good for two things. The first is consumer protection. If you buy goods worth more than £100 with a credit card, the card company is jointly liable, with the retailer, for the supply of goods. So if anything goes wrong, such as the retailer going bust and failing to send your goods, you get your money back. This kind of protection is not afforded through debit card purchases.

The second good use for credit cards at university is for emergencies. If you need to get home to your parents in a rush, or you find yourself locked out in the cold with no cash, you may be thankful for a plastic companion. 

Store cards

This form of borrowing is the big 'no no' while  you are at university. Not only are store cards restricted to one or just a group of stores (all of which sell non-essential and certainly non-emergency goods such as new clothes and iPods) they are notoriously expensive, carrying interest rates in the region of 30% APR. In this case, if any kind of balance is left sitting on a store card, which must also be repaid monthly, it is the biggest waste of valuable money you may ever encounter at university - after the 'last vodka and coke' which tipped the balance in the morning and meant you missed your lecture, that is.

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