The pros and cons of student loans

One of the most significant expenses families have to factor in their budget and savings is that of their child/ren’s education. Even while primary and secondary education might be free, University fees are often exorbitant, especially if your child gets into a specialist University or college.

Which leads to the most pressing question – should you take a student loan to fund college education, or is that a bigger burden than a help in the long run? This post helps iron out the pros and cons of student loans to help you make a more informed decision.

The pros:

Makes college education an option for more students

This point makes it to the top of the list in this category as, let’s face it, without a student loan, a college education would be out of reach for millions of students. A sound college education is immensely expensive (more so if it’s a private college) and even with financial help from parents and part-time summer jobs, it is largely unaffordable for most without taking a student loan.

However, special student loans and aids such as master promissory notes make it much easier for students to get into a good college. You can read more on what is a master promissory note to find out whether it will help you.

Helps you get into your dream college

Even if one has saved wisely for their child’s future education, and can afford college without a student loan, it is more likely that would be for state universities or colleges not in the top leagues. The hard truth is that if you have a career dream which begins with a top-rated University, you will most probably need a student loan to be able to afford it.

Can be used for things other than tuition fees

Yes, you can use a student loan for other aspects of college life as well, such as boarding and lodging and essential college expenses such as textbooks, a laptop, computer software etc. All these things add up and a student loan helps ease the financial pressure.

Helps students to start building their credit scores

Most students don’t have bills or payments associated with their names, so a student loan, if used responsibly and paid off in time, can help young graduates build their credit history. Having a good credit score is essential for future financial benefits such as when applying for credit cards, purchasing a home or a car or applying for other loans.

Paying off student loans also helps young people to learn financial responsibility – to borrow only as much as they can repay; to make (even small) payments while still in college so as to keep the credit balance low and to ensure regular monthly payments.

The cons:

Student loans are expensive

When you take a student loan, you don’t just have to pay back the amount that you borrowed, but you have to pay back interest as well. This can build up and become a handsome amount over the years, especially if you don’t find a job (or a well-paying job) immediately after graduation.

You start your working life with debt

This is an extension of the above point and possibly the biggest sore point of taking a student loan – unless you secure a well-paying job immediately after graduation (which isn’t the case for most young graduates), a large chunk of your salary will go towards repaying your loan. And depending on how much you’ve borrowed, it might take years to repay, which means you are starting your working life with a debt.

However, there are a few tips to effectively manage and pay off your student loan as smoothly and quickly as possible – click here to read more.

Paying off student loans means putting off other life goals

If a large chunk of your salary goes towards paying off your loan, then you won’t have much left to save for other big purchases such as your first home or the fancy car you’ve always dreamed of getting. Certain life goals will have to be put on the back burner until you can repay your loan or you get a significant salary increase.

Defaulting on your student loans is bad news for your credit history

If you responsibly pay off your student loan, it can add value to your credit score. However, the opposite also holds true and defaulting on your student loans reflects badly on your credit history – which will be a financial setback for years to come, having to pay more for other loans, mortgages, credit cards etc. So make sure you borrow an amount you know you will be able to pay back and don’t forget to make your monthly payments on time.