Student loans are taken by many students because all do not have the money to pay for their higher education, student loan refers to those loans which are given to students for pursuing their higher education and it includes all expenses like college fees, book expense, hostel fees and other expense related to higher education. Given below are the advantages and disadvantages of student loans –
Advantages of Student Loans
- The biggest advantage of student loan is that it helps the needy students who do not enough funds but are intelligent and it is due to student loan that they are able to pursue higher education and get a good job and thus it helps in making their career. These are designed in such a way that student does not have to repay immediately rather once their education is complete then they have to pay the installments from their salaries.
- Another advantage of student loan is that they carry lower rate of interest as compared to other loans like housing, vehicle, personal loan and so on and therefore both student as well as their parents do not have that much burden because lower rate of interest means lower monthly installments and hence less stress on the part of the borrower.
- There is no need for any security up to certain amount in student loan and hence borrower is saved from stress of arranging for security as is the case with other loans where the borrower has to arrange for security in order to take loan from bank or financial institution.
Disadvantages of Student Loans
- The biggest disadvantage of student loan is that it is a loan and it carries interest and therefore when one takes this loan he or she should bear in mind that it will lead to him or her being in debt for long period of time because due to interest loan amount will keep on accumulating until one start repaying it. That is the reason why these type of loans last for many years and when one gets the job after completing his or her studies than he or she will find that large chunk of the salary going into repaying the monthly installment of student loan.
- If due to some reason after completing a degree student is unable to get a good job than it can lead to big problem because if income levels of a person who has taken student loan do not match up with their monthly loan repayments than it can lead to defaults and these defaults will ruin the credit history of an individual and hence getting a good job is very important if one wants to repay the student loan on time and without default.
- Another disadvantage of student loan is that an individual is getting into debt at very early age and due to it all focus of an individual shifts towards repaying the loan rather than focusing on career. Student loan leads to individual being in constant stress and therefore his or her creative abilities takes backseat and chances are that an individual will sacrifice long term growth in his or her career for short term financial benefit and hence student loan in a way is deterrent to an individual success. It can be better understood with the help of an example, suppose for example if a person after completing the degree is getting offers from 2 companies one is offering $50000 yearly package while other is offering $70000 but scope of growth and career opportunities is high in first company then person who has taken loan would go for second company even if it means sacrificing the career of an individual.
As one can see from the above that student loan has both benefits as well as limitations and an individual before deciding whether to take student loan or not should keep in mind above factors because this decision will have long term impact on the future of person taking student loan.