Career Development Loan An interesting career move

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

Professional career development loans 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 finish your course over £1,000 better off.

• Can you afford to go back to college?
• The basics
• Choosing a loan
• Boosting your pocket
• Size of the savings
• Related articles/Discussion

Make sure you double-check the maths

Going back to school without going under

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 on 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 options in the Grant Grabbing guide as well as with the six Government-funded research councils or the Arts and Humanities Research Council. If you want to study something undersubscribed such as physics, you could strike it lucky.

Why not ask your employer to sponsor you? Especially if the course is related to your job. If none of this 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).

Professional career development loans: The basics

Your next port of call is a professional career development loan. Here, the Learning and Skills Council 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. 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 development loan.

How much you can borrow?

You can borrow between £300 and £10,000 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 development loan may affect your benefit entitlement, so double-check with your benefits office before you apply.

Other study loans: Beware impostors!

Only two banks, Barclays and Co-op, run genuine career development schemes.

Others may try to pass off another product 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 development loan where there's no interest charged while you study, here you're charged interest. Because you don't make repayments, the debt grows and remains unpaid during that time.

Choosing a professional career development loan

Not all development loans make the grade. They are run by two 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 the other.

Don't trust the advertised APRs

A brief glance at the bank's brochures and interest rates look okay. Barclays, for instance, mentions 5.7% 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.

So don't trust the marketing hype. By far the best thing to do is simply call the 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 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, apply for the cheapest unsecured personal loan and use it to pay off the professional career development loan.

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 the Tart Alert and get a free reminder). To find the cheapest, read the Cheapest Personal Loans guide for more details.

Sneaky trick for champagne students

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

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. Obviously the cost of forgetting to pay it off would be huge, so brand it on your forehead or, for less pain, use the Tart Alert.

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.

Borrow £5,000 with a Barclays professional career development loan, repay it over three years, and it would cost £777 in interest. Take out a development loan, pay it off with a personal loan as soon as the 0% period runs out and it would cost £640. That's £137 cheaper than taking out and sticking with the Barclays loan, but would normally be better in a more stable loan enviroment.