Career Development Loans - an interesting career move

Former boy's teen fantasy Kim Wilde ditched the kids in America for digs in polyester when she retrained as a gardener. But for those of us without pop royalties to fall back on, changing careers can be costly.

Career Development Loans (CDLs) are where the government pays the interest for the duration of your course. They are useful while you study, but you need to give them the elbow sharpish after you graduate or the interest will pile up. The good news is that by manipulating them cleverly you can graduate your course over $1,000 better off.



Before you hit the books you must do some basic maths. If you're going to rack up debts to fund your studies, weigh up the cost against your future earnings. While postgraduate training in medicine or law might be a nice little earner, two years musing Medieval poetry mightn't be so lucrative. Take a deep breath and think about whether you are really ready to commit to your course. Even if you decide to drop out you could still be saddled with course fees to pay.

Don't rule out the idea of getting a bursary; several charities and foundations offer these and many go unclaimed each year. Check with the six government funded Research Councils and the Arts and Humanities Research Board – if you want to study something undersubscribed such as physics you could strike it lucky.

And why not ask your employer to sponsor you? Especially if the course is related to your job. Though if none of this scrounging pays off, you'll need to stump up the cash yourself. Could you study part-time and keep working? Or put off extra study until you've saved some cash? Do a budget and work out exactly how much cash you'll need (use my special budget planner to help, basing the numbers on what you'll spend while studying).


Your next port of call is a Career Development Loan (CDL). Here, the Department for Education and Skills foots the interest on your loan for the duration of your course (and one month after it finishes). Quit the course and you have a one month break before being charged interest.

Applicants must be over 18 and intend to work within the EU. And, before you sign up to the nearest watercolour class, the catch is the course must be vocational. In other words it must provide skills that will help you get into a new job or get ahead in your current one, such as NVQs, Open University degrees or postgraduate courses.

Your course can be a full-time, part-time or distance course, lasting up to two years. It can also cover an additional year of work experience, if this is part of it, though if you're eligible for a normal student loan or an employer training award you can't get a CDL.

How much you can borrow

You can borrow between $300 and $8,000 and you agree with the bank how long you'll take to pay it back. The amount you're entitled to is 80% of course fees, expenses including childcare, and living costs for full time students. If you've been unemployed for at least three months you can apply for 100% of your course fees.

Receiving a CDL may affect your benefit entitlement, so double check with your benefits office before you apply.

Other study loans: beware impostors!

Only three banks – Royal Bank of Scotland, Barclays and Co-op – run genuine career development schemes. Others will try to flog you ‘professional development loans', which they try to pass off as the real deal.

The line they use to draw you in is “no repayments to make while you study”. But don't be sucked in; unlike a CDL where there's no interest charged while you study, here you're charged interest, but just don't make repayments, which means the debt grows and is unpaid during that time.


Not all career development loans make the grade. They are run by three banks and not the government, so rates (after the interest holiday) can be steep and you may be rejected if you have a poor credit history. You can only apply to one bank at a time, but if you're turned down you can target another.

 

Don't trust the advertised APRs

A brief glance at the bank's brochures and interest rates look okay. Royal Bank of Scotland, for instance, touts 10% APR. Yet this rate is misleading. It works out an average APR for the entire period of the loan – including the government's interest free period, whereas the others just list the rate for the period they're actually charging interest.

In actual fact its CDL is substantially more expensive than the others, I estimate its true APR to be nearer 20% on a like for like basis (and it's that figure in the table above, compared to 12.9% for the others).

So don't trust the marketing hype. By far the best thing to do is simply call the three banks up, get a quote for the amount you want to borrow and base it on that.

Always switch after the 0% ends

After the interest holiday, rates are shocking, so give your career development loan the heave-ho as soon as the 0% period ends (one month after the end of your course). After checking any early repayment conditions on your CDL, apply for the cheapest unsecured personal loan and use it to pay off the CDL.

This should cost much less over the three years. Ask the loan company when they will start charging interest and tattoo it on your arm (or, less painfully, use my tart alert and get a free reminder). To find the cheapest read the Cheapest Personal Loans article for more details.

Even if you don't need all the cash, get the biggest career development loan possible anyway. Take out the loan, plonk it in a high interest savings account (see ‘Where to Start with Savings') – and you could sneakily make money from study.

Then repay as much you can (or all of it) at the end of your study, before any interest is charged, and move whatever debt remains to a cheaper personal loan. This way while you're on the course you'll be earning interest on the cash you've borrowed for free - on an $8,000 loan, over two years, you can reap $820 profit from the interest, a nice addition to your educational finances.

The Size of the Saving

Borrow $5,000 with a RBS career development loan, repay it over three years, and it would cost $1,540 in interest. Take out a CDL, pay it off with a personal loan as soon as the 0% period runs out and it would cost just $440. That's $1,100 cheaper than taking out and sticking with the RBS loan.

 

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