What are the Risks of a Student Loan?
Many people think that a student loan is really worth taking out. They feel that having a university education will be well worth it for many reasons. They feel that the degree will get them a better job and the whole experience of being at university will be a lot of fun and give them an experience that they will not get anywhere else as well as a way to move out of home but still with some support. However, all of this costs money and the loan tends to be the way that most people pay for it.
Many people feel that a student loan is good because it is paid back slowly over time and the interest rate can be protected so that it is not too high. In the UK the loan only have to be paid back once you earn over a certain salary and then it is a percentage of that salary taken out through a tax code. This means that it is not counted as debt so does not show on your credit rating and will not count against you when looking for other loans. After a certain time the loan also gets written off, which means that if you never earn enough to make repayments, then you may never have to repay any of it.
However, the rules of the student loans are set by the government and it was thought to start with that they would be kept to and everything would be well managed. However, the government has already gone back on one of their original promises with regards to the loan and so there is no way of knowing whether other things may be changed in the future as well. If the government changes there may be further changes as well and so it could be that the terms get worse after it has been taken out. This may not seem fair or likely but it is something to consider if you are thinking of taking one out.
Another risk is that if you had gone to work instead of taking three years to study, you could have done better in your job. You would have had three years of work experience and you could have had promotions and been higher in a company getting higher pay than starting after university. Of course, this depends on what career you want to get into as some are impossible without a degree but others can be worked up to. If you want a career where you need to have a degree then it is far more worth taking the risk of a student loan. If you are not sure what you want to do and do a degree in something you find fun, not sure what you want to do in the future, then you could find that the loan is not the right thing for you. You could end up having to pay it back but doing a job which you could have done without having the degree.
It is a big decision. Many students just assume if they are capable of doing a degree because they have the qualification then they should do one. However, it can be worth waiting. Although the cost of the degree may go up, it can be worth doing some work experience first, for a good few years, to make sure that the degree choice that you have made is something that you really want to do. It can actually be very hard to imagine what it might be like working in a certain industry until you actually do so.
Obviously doing a degree can be great and many people will tell you that. However, a lot of people did not have to pay for their degree and so they will not understand the consequences of that. A free degree where you would only forgo any salary you would have otherwise had for those three years is very different to doing a paid loan. You will need to consider whether you think that it will give you good value for money and whether you would be happy with having that loan hanging over you for 30 years. This is longer than most mortgages so is a long time with a debt to pay off. Some people do not mind having a loan, but others do and you need to consider whether you will mind or not mind this.
So the risks of a student loan are the concern associated with having a loan hanging over you once you are done and the fact that you may not get a better job as a result of doing the course and spending all of that money. One alternative is to pay outright, if you can afford it. However, this could work out more expensive, because with the loan you only repay if you are earning enough and it is written off after three decades. You may end up not having to pay it all back anyway.