Welcome to the real world

The final exam paper took place earlier this week, the post-exam party was mental, the resulting hangover is being nursed delicately and a last-minute holiday has been booked, courtesy of an ever-patient bank manager or indulgent parent. Then what?

Tens of thousands of former university students will find themselves in a similar situation this summer. Freed from years of last-minute cramming and late-night essays, they will be venturing gingerly into the world of work, suits and ties and other boring commitments.

What kind of financial state will they be in? Not a good one, according to the National Union of Students (NUS). The NUS estimates that 300,000 students will be leaving college this June with an average debt of pounds 6,000 each. And in many cases their debts will have to go higher before they can start to repay them.

Darrell Pulver, manager of Barclays' graduate banking arm, says: "The cost of going to university has increased by over 100 per cent in the last five years. Graduates have had to deal with the realities of a reducing maintenance grant and the introduction of tuition fees. Levels of borrowing are expected to increase even further."

Sophie Turner, a Barclays Bank spokesman, says: "After university, graduates still need flexibility from their bank. In addition to their existing overdrafts, they'll have to spend money on clothes for interviews, travel to and from work, they may want to buy a car or a flat. They may even want some money to go on holiday after all that studying."

All students select a bank at the outset of their courses. But by the time they leave college, many will consider switching accounts. Sometimes it is because the high street offers different choices or there is a convenient bank just around the corner from their place of work.

The important point to note is that at the time they graduate - and find work - they become highly sought-after by banks. Brian Capon, spokesman for the British Bankers Association, says: "Banks want students and graduates as customers because they will go on to be the higher earners of the future."

Given the state of a typical student's overdraft right now, it may seem difficult to believe in their spending potential. The main proof of the banks' eagerness lies in the attractive packages, which they think are especially suited to students' needs and will win them over.

Each summer, the deals get better. Until last year, Barclays was the only major bank offering dedicated graduate managers. Ms Turner says: "We have 100 specially trained graduate managers who are dedicated to offering graduates advice about their finances, helping them choose the best solution to suit their financial circumstances."

This focus on students and graduates has paid off for Barclays, which currently boasts 460,000 student and graduate customers.

This year, NatWest has decided to follow Barclays' example and has hired 60 specialist advisers. David Bloomfield, head of student and graduate banking at NatWest, says: "Times are tough [for graduates] and our package, which features a three-year interest-free overdraft, a special graduate loan, preferential graduate mortgage and a service giving advice on finding jobs, aims to ease the burden."

All four major banks, Barclays, NatWest, Midland, and Lloyds, are offering a pounds 10,000 unsecured loan at APRs lower than the standard rate. However, students who need to borrow more can go to the Royal Bank of Scotland (RBS), which offers a loan of up to pounds 15,000 at only 7.5 per cent APR. Jayne Goodwins, head of RBS media relations, says: "Our package is probably the most generous. That's because we've looked in depth at the market and been realistic about students' debt levels."

It goes without saying that graduates should not borrow large sums of money simply because they are available - in any event, such high loans will only be granted if a bank believes its account holder is a worthwhile risk. Another characteristic of most student and graduate accounts is a free overdraft facility of up to pounds 2,000, with various levels of buffer zone in case the account holder inadvertedly goes into the red without clearing it first.

Not all banks offer specific graduate packages. For example, the Halifax and the Co-operative Bank simply extend their student package for one year after graduation.

Dave Smith, a spokesman at the Co-op Bank, believes that the bank's ethical stance is a big draw for students. And its Internet site was recently voted the best banking Internet site in Britain.

There are some institutions, such as Nationwide and Abbey National, which don't offer student accounts. Lorna Waddell from Abbey National explains: "Until now, we haven't had many student accounts as we have no campus presence."

For students who stay on in post-graduate studies (but only in medicine, law and accountancy), the Bank of Scotland offers a professional studies loan. Those on a one-year course can borrow up to pounds 6,000. Those on two- year courses can borrow up to pounds 8,000. They have seven and 10 years, respectively, to pay.

For former students, the deal to go for depends on personal circumstances. Do you need to borrow a lot? Do you expect to use your overdraft facility? What balance do you expect to keep in your account?

Richard Darlington, NUS spokesperson, says: "We don't advise people, except to say shop around, look at what's on offer, and make your decision based on the long term rather than short-term inducements."

Either way, deciding which bank to go with is likely to be the first in a series of tough financial choices. Sadly, it won't be the last. Meanwhile, have a nice holiday.