Dosh dilemma: Tom’s tough student loan decision

Tom has worked hard to save his money.

Between birthday gifts, a part-time job and putting money aside whenever he could, he's built up enough savings to pay for his university accommodation without taking out extra borrowing.

On the face of it, it seems like an easy decision. Why start adult life in debt if you don't have to?

But it’s not that simple. Paying for accommodation would use up almost every penny he's saved. That would leave him with little or nothing to fall back on if his laptop broke, he needed to travel home unexpectedly or faced any other surprise costs.

Tom's parents think he should take the student loan instead and keep his savings as an emergency fund. They argue that having money in the bank gives you peace of mind and a financial safety net.

Tom isn't convinced. He hates the idea of graduating owing money and wants to keep his borrowing as low as possible.

So, should he use his savings or take the loan?

Many people see debt as something to avoid at all costs. In most situations, that's a sensible approach.

But not all borrowing is the same.

Student loans work very differently from credit cards, overdrafts and personal loans. You don't start making repayments until you're earning above a certain income threshold, and the amount you repay depends on what you earn, not how much you borrowed.

That means the decision isn't simply about avoiding debt. It's about deciding how best to use the money you already have.

Think about your safety net

Before spending all your savings, ask yourself:

What happens if something goes wrong?

University can be unpredictable. You might need to replace a broken phone or laptop, travel home at short notice or cover unexpected living costs.

Having some savings set aside can make those situations much less stressful.

If you spend everything on accommodation, you could find yourself relying on an overdraft or credit card later on, which may end up being far more expensive.

Think beyond your first year

It's also worth looking at the bigger picture.

Will you be able to save while you're studying? Will you have a part-time job? Are your parents able to help if you run into financial difficulties?

If your savings would take years to rebuild, keeping some money aside could give you valuable breathing space throughout your course.

It's not all about the numbers

Money decisions aren't just about maths.

Some people simply sleep better knowing they owe as little as possible. Others feel more comfortable having cash in the bank for unexpected expenses.

Neither approach is necessarily wrong.

The important thing is understanding the trade-offs before making your decision.

Avoiding unnecessary debt is usually a good habit to get into, but emptying your savings isn't always the best alternative.

Having an emergency fund can protect you from bigger financial problems later on, especially if it stops you needing to rely on more expensive forms of borrowing.

Before deciding, work out how much you'll realistically need during the year and whether you could strike a balance by using some of your savings while keeping enough back for emergencies.

Sometimes financial security isn't about owing the least money, it's about being prepared for the unexpected.