Banks woo students in hope of big dividends later

By JANINE OGIER

A poor student might not appear to be the ideal candidate for a bank's largesse, especially considering the size of some student loans.

But the opposite is, in fact, true.

Banks are competing to attract young customers because the poor student of today generally evolves into a lucrative client of the future, who will seek a loan to buy a car, spend up large on credit, get a mortgage, invest and insure.

Banks are offering enticing incentives to students to get their custom and, hopefully, keep them on the books for the days ahead when their account has a money-spinning quality.

One way they do this is by offering attractive student packages with few strings and lots of bells and whistles, many of them free.

The main banks, ANZ, National, ASB, BNZ and Westpac, have similar student packages. That's not surprising in this competitive industry.

Generally, students do not pay monthly transaction fees, get free internet banking, free use of their bank's ATMs, free use of an eftpos card, an interest-free overdraft of at least $1000 until studies are completed and a credit card with the annual account fee waived. Some offer free phone banking and no charge on internet transactions.

The marketing pitches are similar, but some banks have appealing differences to attract young clients.

National's Tertiary Plus package offers no fees for automatic payments, a savings account and a $5000 personal loan.

ANZ's student package offers personal loans at home loan rates with interest-only repayments until studies are finished and a waiver of automatic payment fees.

ASB's tertiary package extends the interest-free overdraft to $2000 after the first year of study.

BNZ's Campus Pack includes an eftpos card that is also a StudentCard and a discount card. BNZ offers an interest-free overdraft of $1000 in the first year of study, $1500 for second-year students and $2000 for the third and subsequent years. It will provide up to $5000 in a personal loan at a discounted rate.

Westpac also tiers the interest-free overdraft, with an initial limit of $1000 rising to $1500 for the second year and $2000 for the third year onwards.

Browsing the banks' internet marketing for students, it seems students have easy access to credit and can manage their account with fewer fees than the ordinary customer. But a prudent eye can see that a graduate may also end up with a lot of debt.

After all, the interest-free overdraft attracts interest after studies are completed, so borrowers can wake up one morning with a hefty repayment commitment.

And if they are juggling credit card payments and student loan repayments, there's a mountain of debt to contend with.

The prudent thing for students to do is to take advantage of the good things the banks offer and resist the temptation of extra debt. Utilise the free things and avoid the extras, which will eventually lead to big payments.

If they use the overdraft, students should be prepared to pay it back the day before interest will start to be calculated.

Some financially crafty students even admit to using the overdraft to dabble in the sharemarket or other investments. They pocket the profits and eliminate the overdraft before any interest is due.

For those capable of such feats, and willing to risk the bad investments with the good, the interest-free overdraft facility is an opportunity to exploit.

Generally, though, keeping debt to a minimum pays in the long run.

Comments from banks this week indicate fiscal prudence is not a foreign concept for students.

"Interestingly the take-up of these [available lending] facilities is low and what is apparent to us is that students are more attracted to offerings such as our highly successful StudentCard, which enable them to obtain discounts at major retailers across the country," the BNZ says.

"Our research has shown that students are comfortable with the interest free overdraft but that further borrowing can put them in a difficult position," says Westpac.

National advertises on its website a $5000 limit on total borrowing for student account holders. It is the only bank to publicise a limit in this way.

Through an ANZ student loan, students can borrow up to $2000 a year of study, with maximum borrowing of $6000.

Other banks talk of considering the student account holder's individual circumstances in determining any lending limit, but aren't specific about a maximum.

How all this debt can come back to haunt a student later in life depends on the individual, but banks do look at student loans and repayment commitments as part of the process of assessing clients for mortgage or personal lending.