Degrees of debt

What is the world coming to? You spend three years studying, expecting to triumph as one of the country's higher earners. Instead you find yourself up to your ears in debt without so much as two job offers to rub together.

For new graduates, getting back on your feet financially can be as tough as sitting your finals. Grants now have to be topped up with student loans, and, as if to add insult to injury, graduates often find themselves saddled with bank overdrafts too.

Debts owed by recent graduates averaged pounds 3,203, according to a Barclays survey last year. Student loans are smaller in the last year of a degree course, because they do not cover the vacation. But this is just the time when many people face new costs and still have no salary coming in.

"The major problem is if you're relocating, you've got to get money for a deposit and it all starts adding up," says Liz Vaughan-Adams, who graduated from the University of Kent at Canterbury last summer. She had to find pounds 500 for a deposit on a flat.

Banks now seem more aware of the money problems many new graduates face, and offer some cheap short-term financing deals. "We are keen for students to stay with us because a lot of them will be the high earners of the future," says NatWest spokesman Guy Bellamy.

Marketing minds at banks seem to have worked out that students are not to be wooed only at the start of their courses but when they come to an end too.

Midland comes top for generosity, offering an interest-free overdraft of pounds 1,500 in the first year after graduation. This then falls to pounds 1,000 in the second year and pounds 500 in the third.

Overdrafts above these levels, providing the bank has authorised them, are charged interest at a rate of 8.3 per cent APR. Up to pounds 10,000 is available as a graduate loan for five years at 9.9 per cent APR.

Barclays has polished up its graduate deal this year. Overdrafts are now interest-free up to pounds 1,500 for the first six months after graduation, with pounds 100 available interest-free for the next 18 months. Additional authorised overdrafts are charged at 7.2 per cent APR. Lloyds will let graduates go pounds 700 overdrawn before charging interest, reducing this to pounds 350 in the second year after college ends.

For graduate loans, NatWest offers the cheapest. It charges 8.2 per cent APR for up to pounds 10,000 which can be borrowed for seven years. It offers a pounds 1,000 overdraft interest-free for six months.

If you need some breathing space, some banks will let you delay paying back a graduate loan. The Royal Bank of Scotland gives you the longest payment holiday. Payments on a loan of up to pounds 5,000 can be deferred for up to nine months. Interest is currently charged at 8.75 per cent APR.

Lloyds Bank offers graduates personal loans of up to pounds 5,000 at 8.9 per cent interest, and there is an option to take a four-month payment holiday on this. Barclays lets you defer graduate loan payments for three months, and charges 9.9 per cent APR. Some banks say you must either be in work or have a firm job offer in order to get a graduate loan.

Banks offer new graduates various other perks, such as fee-free credit cards, commission-free travellers' cheques and foreign currency.

But it's not the banks that give new graduates the headaches, the National Union of Students says. The student loans system is often the culprit. On the whole banks tend to treat ex-students fairly, an NUS spokeswoman says.

"Students are quite wily... where there are problems people will switch accounts if they're not getting the service they want," she says.

Bank overdrafts can be turned into graduate loans at quite competitive rates, and banks go through budgeting with their customers, she says, but student loans are repaid at a flat rate over five years. "We feel it's really not a very flexible system. If you're repaying pounds 50 a month on top of repaying your overdraft and other borrowings, that is quite a lot out of your salary if it's only pounds 15,500 a year."

Students can borrow up to around pounds 2,000 a year under the student loans scheme, depending on the limit set for that particular academic year. The loans do not carry interest as such, but the amount outstanding increases in line with inflation. Graduates are not asked to start repaying their loans until the April after the course finishes, and then only if their income is 85 percent of national average earnings - about pounds 15,200 at the moment.

New expenses you are likely to face after graduation include a deposit for a flat, and rent in advance, increased travel costs and the bill for a new wardrobe.

Debt is increasingly a fact of life for new graduates. Students starting a three-year college course this year will probably owe around pounds 8,000 by the time they graduate, with three-quarters of this in the form of a student loan, she says.

Banks are at pains to point out how flexible they can be on graduate financing packages. And one thing they agree on is that new graduates in financial difficulty should keep them informed. "Don't just bury your head in the sand. Come and see us," says Royal Bank of Scotland.