Get your life started with a student loan

Student loans help the prospective student to pay for their tuition, accommodation and educational materials during their studies.

This article will explain what student loans are and how they can be used as a springboard for the future of prospective students.

Society prioritises education above all else, which is why many young adults feel pressurized to further their studies at a tertiary institute after the completion of high school.

Rising unemployment rates make tertiary education partially essential in finding employment. The problem is that these young adults cannot afford the education which they need and this is where Government and private student loans come in.

Although the Government loans are able to fund the majority of your studies, you may encounter extra expenses which it will not cover. In such a case you will need to make use of alternative sources of income or private loans.

Student loans can help you get the education you need

Many lenders and similar financial institutions offer student loans because of the necessity they play in the future of the young generation in Australia.

In Australia students are able to access student loans from the Department of Education which can fund a tertiary education and will only needs to be repaid once the borrower has started working and is earning over a set amount.

In order to qualify for these loans you must meet the eligability requirements for the specific type that you are applying for and you can find this information on the Government's StudyAssist website.

Government student loan options

• HECS-HELP
• FEE-HELP
• SA-HELP
• OS-HELP

Repaying your student loan

When repaying a student loan, the borrower often only needs to repay the interest accumulated monthly and, once employed, must begin repaying the full loan amount which will continue to generate interest.

The amount to be repaid monthly will take the student’s new income into consideration and charge a fair and affordable repayment amount. Since student loans are repaid over a long period against an asset, such as property, is usually used as security to secure the loan.

Since young adults do not easily own property yet to provide as collateral, a third party needs to become involved. In the case of most student loans, the borrower needs to be accompanied by a guarantor who stands as security for the loan.

How a guarantor can help get you the loan

Guarantors are an excellent way to help secure the student loan that you need when you do not have the means to do so yourself.

The guarantor, usually a parent in the case of student loans, will agree to repay the interest accumulated on the loan monthly until the student has become employed and can repay the loan amount themselves.

As stated above it is unlikely that young adults will own property or an asset equivalent to the loan amount themselves. This is why the parents are perfect guarantors since the home they own can stand as collateral.

Using a guarantor also allows the borrower to access higher borrowing amounts, lower interest rates and better loan terms giving them the boost they need for the money that will plot the course for their future.

Student loans are good debt

Student loans have become a necessary debt in the lives of most citizens. Even though there are many problems associated with student debt, it can also be good debt if properly controlled. When it comes to debt, it is not uncommon to hear about ‘good’ and ‘bad’ debt.

Bad debt refers to credit cards, personal loans, short-term loans and an array of other credit options. The classification of ‘bad debt’ does not mean that these loans should be avoided but rather that the borrower does not get anything by the end of the loan.

For example: in the case of a vehicle loan the vehicle is constantly depreciating meaning that by the time the vehicle has been repaid, the vehicle is not worth the amount it was financed for.

Good debt typically refers to mortgages and student loans. This is because the borrower stands to benefit from the debt they are creating. By the end of a mortgage, the borrower will own their property. And, since property appreciates with time, the property may even be worth more than what was paid on the mortgage.

It is important to note that student loans carry such low interest rates that repaying them early will not actually be a good use of extra cash and savings. This is why, it's best to just keep up with the repayments as required.

Use a loan to build a good credit record

Especially since students do not have an income or prior credit, a student loan is a great way to start a credit record. If all repayments are met on time, the student can begin their life with a good credit standing.

This good credit record can be used to help access good finance options in the future such as mortgages, vehicle loans and any other finance that might be needed.

You get what you pay for

As stated earlier, good credit means that the borrower gets something for their expenses by the end of the loan term. In the case of a student loan, the borrower will have the qualification and knowledge behind their name. This qualification will enable them to access better-paying jobs and higher lifetime earning potential.

While it is always better to avoid debt, sometimes debt is necessary. Good debt can help the borrower to get ahead in life and should be considered if it is affordable and will not damage the financial position of the borrower.

While student loans are an excellent option for prospective students, those considering this loan option should also first attempt to obtain other sources of funding such as bursaries and scholarships.

While student loans can build a good credit record, there are other means by which a credit record can be built. So if the opportunity arises to be granted funding, it is best to accept this with open arms.