Category: Student Loans

Student loans 101 – What you need to know to make the right decision

Student loans can be invaluable for those who have the desire to go to university, however, as good of an idea as they may seem when you’re an undergrad, they can put a lot of pressure on your financial situation.

Generally speaking, getting a student loan isn’t particularly difficult and there are few restrictions when it comes to eligibility. This having been said, as with any type of long-term loan, you should know what you are getting yourself into and the extent of the impact that your debt will have on your financial life. Here are the most important things to keep in mind:

  1. There are two types of student loans that you can choose from

Depending on what bank or lender you choose, you may be presented with several types of loans, each having its particular advantages and disadvantages. Determining which one works best for you is extremely important and will have a serious impact on how you will pay your debt once you finish your studies.

First, there are Income Contingent Loans. These are not repaid through fixed monthly instalments, like a regular loan. Instead, variable amounts of money will be deducted from each of your paychecks. All of this is done through the tax system and the amount of money that you will pay each month will be based on your income. The higher the income, the larger the amount that is deducted from your salary.

The second type of student loan is the Mortgage Style Loan. As the name implies, the repaying this type of loan is done through monthly instalments.

  • There are certain situations that will trigger the repayment plan

You will not have to start repaying the loans immediately after you finish university. Instead, the repayment plan will be triggered by one of three situations:

  • If you get a job – If you are employed, you will have to start diverting a portion of your income towards repaying your student loans;
  • If you are self-employed – Starting a business will still trigger the repayment plan;

Keep in mind that the repayment plan will still be initiated if you find a job overseas or if you move to another country. The exact details of the loan repayment procedure for these situations will be described in the terms and conditions of the agreement. Be sure to read them thoroughly.

  • You only start paying once you earn enough money

In order to make it easier for future graduates, most student loan agreements specify that the repayment starts only once the borrower has a large enough income to support the cost. To put it plainly, you will only have to start paying after your income reaches a certain value.

  • You can repay the loan faster, even if you do not have the required minimum income

It is possible to make additional monthly payments towards repaying your student loan or to pay larger monthly instalments. You can also start making payments, even if your monthly income has not yet reached the repayment plan trigger point.

  • Know what you’ll have to repay

Not all the money that you will get has to be repaid. For example, you will have to repay tuition fee loans, maintenance loans and postgraduate loans. However, all the money that you get through grants and bursaries is yours to keep and use as you see fit.

Conclusion

Student loans are serious long-term commitments that will affect your financial life for up to a decade or more. However, most loans are designed to be both accessible and easy to pay and shouldn’t be feared. It is in the interest of the lenders to get their money back, which means that the terms and conditions of the loans are designed to maximise your ability to repay the money.