Gulf News December 19, 2009
21 December 2009
Gulf News: "Student Loans Don't Come Cheap"
Q. For students taking out student loans, what are the things to be wary issues comparing costs, etc. Please discuss this issue of what the student themselves and their parents should be wary about?
Deciding to continue your education to degree level is an important step to achieving future career and life goals. But it doesn’t come cheap. There are course fees to consider, as well as the costs of accommodation and living expenses, plus the extra cash needed for educational resources and trips.
Many parents try to save money to put towards their children’s on-going education, but even the best laid financial plans may require boosting with a lump-sum loan.
Students from the UAE may choose to study at the growing number of educational institutions across the country, or decide to travel overseas. In most cases, the only way to get extra financial help for these studies is to take out a student loan from a private financial institution or bank.
The advantage of student loans is that the interest rates are normally lower than for standard personal loans, in recognition that the borrower will not be earning for a few years. Lenders also see University students as having the potential to be high-earners once they graduate, and so good future clients.
Student loans can be taken out either by the student or their parents, but in both instances the lender will ask to see evidence that there is enough income within the family to offset the repayments.
In the UAE, for example, there are strict regulations around the applicant’s age and current financial status. If the applicant is over 21 years then they will have to produce evidence of their own income, and if the applicant is under 21 their parents’ income must be disclosed.
Lenders also often require an invoice from the University for tuition fees, and in some cases will transfer the loan for tuition fees directly to the higher educational institute, rather than into the applicant’s own bank account.
This is to prevent individuals from taking advantage of the low interest rates linked to student loans and investing the money, in the real estate or stock markets, rather than using it to pay for education. In line with this, student loan contracts often stipulate what the money should be used for.
While some enterprising students have successfully made small amounts of extra money in this way, anyone discovered using a student loan outside the loan agreement risks having the lender end their loan contract, and demand a full repayment of the monies in one go.
Another important factor to consider is the total amount you need to borrow, and how long you need to repay the loan, once you start earning. Any good independent financial advisor will tell you to only borrow the minimum amount you require, after calculating all the costs involved in completing your desired degree. Keeping the sum as small possible will save you from being saddled with a $30,000 to $40,000 debt on graduation.
Having flexibility in paying the sum off is also an important factor to consider as there may be penalties for late repayment. Think about what your financial situation will be when you graduate. You may be lucky enough to enter a profession that pays well from the off, and so can afford to settle the debt in a short amount of time. However, some graduates start off in low-paying jobs and will need more time, and possibly a repayment freeze until their salary is high enough, to pay back the loan.
By Roy Gaunt, Training Manager, at Nexus Insurance Brokers L.L.C.