There are many parents of teenagers, teenagers and students that worry about student debt. For those in a position where they can afford to pay for their course without a loan or are considering waiting and saving up for a course, it is worth them thinking about the pros and cons of a loan.
How a Student Loan Works
Student loans are different to loans from a bank and it is worth understanding how they work before you worry too much about taking them out. For a start, repayments will not start until you graduate and then they only come in if you are earning over a certain threshold. This means that if you are out of work or not well paid, there will be no pressure with regards to making the loan repayments. The other big difference is that the loan will be written off after thirty years. This means that if you do not manage to repay the loan, then you will never have to. This reduces the pressure somewhat and has led to about three quarters of graduates not repaying their loans.
Advantages of a Student Loan
This means that if you think that you are unlikely to repay all of your loan, then it could be well worth getting one as you will not pay back as much as you would if you paid for your course. It can be hard to predict though, whether this will be the case for you. It can depend on what sort of career you think that your qualification will lead to and how well-paid jobs tend to be in that area. You may also predict that you might take a break in your career, perhaps to raise a family or to look after parents which will have an impact on your repayments.
The loan will have no impact on your credit rating and you will never forget repayments as they come out before you get paid; through your tax code.
Disadvantages of a Student Loan
Although a student loan has many advantages over normal loans it is still worth thinking hard about it. If you do end up paying it all off, then it will be more expensive than it would have been to pay for the course yourself. This means that you need to consider whether you feel you will repay it all or a majority of it and therefore spend more money. You will also need to be making repayments for thirty years which although will not be much, will still be reducing the amount of money that you will have available to spend.
The advantage of the money coming out of your tax code does not apply if you are self-employed. You will have to make your loan repayments when you are paying any money you owe for tax and National Insurance, once or twice a year after completing your self-assessment tax return. This means that you will have to be careful that you are putting enough money aside, along with the tax and national insurance, so that you have enough to cover what you owe. Some people are not good at doing this and could therefore get themselves into trouble if they are doing things this way.
Some people worry that when someone so young gets into debt it will encourage them to continue being in debt for the rest of their lives. Of course, it is possible to counter that argument by saying that as they have experienced debt, they will be less likely to get into debt in the future. It really comes down to the individual’s personality and whether they see the student loan as a stressor or a great thing and how much they worry about their responsibility to repay it.
Most students do not have to make this decision as they will not have the money available to pay for their course. However, if you do, then you need to think carefully about whether a loan will still be a better choice for you. It can be a tricky decision as you cannot predict what your employment status will be in the future.
Some people will feel that the course should be paid for if they can afford it. They may feel that they would morally feel better if they paid for it all in advance and they are willing to risk the fact that they may not have had to repay it all if they had taken the loan. Others feel like everyone else has the chance of not having to repay it all so they should be allowed that chance as well. It is a very personal decision and will only have to be made by those fortunate few who have the money available to pay for their course.