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Is a Student Loan Worth the Risk?

by James McGregor

Student loans are the new way to pay for university courses and it means that students may have to repay the money that they use to pay for their degree and their living expenses. This is something that some people get worried about but there are advantages and disadvantages that need considering.

More Education

Staying in education can have lots of advantages. Many young people blossom at university, with increased confidence as well as knowledge. It can give them a chance to experience life away from home in a safe and nurturing environment and they can enjoy learning new things for another three years. Learning can be fun for a lot of people and once we start work, we have less time for learning and so having the opportunity to continue with our education can be very valuable and it is good to do it at a time when we are less likely to have families and large financial responsibilities.

Better Job Prospects

There are many employers that are looking or workers that have a degree. This means that it is important to have one and some jobs are not even that worried about what degree you have, just that you have one. With many more young people getting degrees, it does mean that there is a more educated workforce to compete with for jobs and so it could be necessary. Of course, it is best to get a degree in a subject that you want to get a job in but it can be difficult to choose a career at such a young age. However, doing something enjoyable is a good start as it will hopefully lead to an enjoyable career. It should also lead to a job that is better paid and although money cannot buy happiness, being able to afford everything that you need is important and a better paid job can help with that. You may also have more job options if you have a degree, which means that you are more likely to find work.

Loan Repayments

The loan repayments are very different to a regular loan. They are taken out as tax before you get paid (unless you are self-employed). You will only have to repay once you start earning over a certain amount of money and then there is a variable scale which will increase as salary increases. This is set up to make repaying affordable. It is also not seen as loan and so will not appear on a credit record and therefore you will not be discriminated against when being considered for a loan. It will impact mortgages, but only because they will look at your disposable income to make sure you have enough to repay the mortgage. The maximum loan repayment is pretty small though and as you will have to be earning well to have to repay that amount, you should be able to get a mortgage anyway. It is worth checking out the repayment amounts and thresholds before taking out a student loan, just so you are sure of what to expect and whether you will manage.

Loan Written Off

Thirty years after graduating a student loan is written off. This means that it will no longer need to be repaid. So, if you have been a low earner for some or all of the thirty years, it is likely that you will not have repaid the loan. A majority of students never repay their loan in full. If you feel you will make the maximum payments each month, then it can be worth repaying the loan early and then you will not pay so much in interest. However, if it is likely that you will not repay it all, then you will be better off not repaying any of it early.

Government Changes

It is worth being aware that student loan rules are made by the government. They have tweaked them before and it could be the case that they will again. This could be favourable or unfavourable so it is a little risky. It is not like a bank loan, where you will have terms and conditions that cannot change. The government are able to change the terms of the student loan. This could have an impact on the thresholds for repayment, the interest rate and most importantly the thirty years before it being wiped off. This does make the loan a risk, but it is unlikely that any government would make a huge unfavourable change to the loans as there would be a big backlash. Even if their voters are not students, their parents or grandparents could be and it will therefore have a big impact and so big policy changes are unlikely but small changes much more likely.

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