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Saturday, March 12th 2011

Student Loans, the Pros and Cons

Taking on debt when you’re young, want things, have little income and have courses to pay for seems, well like a pretty good thing to do. Unfortunately within six months of leaving school, with or without a degree, interest begins to accrue and repayments are expected. Ignore the debt for a while and you may find your student loan is as big as your mortgage. Student loans are good, and in many cases essential, but there are pros and cons, these are a few to consider:

Pros

  • Money to pay for your courses
  • Will often cover other education costs
  • May cover some living expenses
  • Favorable interest terms, sometimes free
  • Extended time to pay
  • No payments until you leave school
  • Less strain on the family budget
  • Public service forgiveness on government loans

Cons

  • Unfavorable interest rates through private lenders
  • Has to be paid back even if you don’t complete study
  • Working life begins with significant debt
  • If you reduce to part time study you may have to begin making repayments before you finish study
  • Loan amount limits
  • Can’t be wiped away in bankruptcy

Those are the pros and cons in general of borrowing to pay for a diploma or degree. There are also quite a few differences in the choice between a government funded student loan and a privately funded student loan. Private loans will generally have higher interest rates and less forgiving non-payment or deferment conditions.  Government loans also offer benefits of public service, tax shelters, and no or low interest terms which make these loans considerably more appealing for most students and their families. Private loans may require co-signers which could put friends or family in a difficult position if things don’t work out as planned.

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