YYou may have seen loans announced by banks and debt firms for students to help pay for tuition or cost of living. There are a couple of reasons why students might consider it: Either you are not eligible for student funding or you have run out of money.
Business loans from banks or specialty lenders can sometimes be a viable option; only you can decide this based on your circumstances. That said, loans are just one of many options and there are likely to be cheaper or more manageable funds.
Whether it’s a loan, credit card, or overdraft, most ways to borrow work in a similar way:
They typically charge setup fees plus interest on everything you borrow, so you can pay back more than the original amount. Compare the lowest rates to keep costs down.
The longer it takes to repay, the more interest you pay. Look for lower interest rates, but also try to pay off the debt as soon as possible.
There are consequences for being late on repayments, ranging from additional costs to legal action, as well as damage to your credit score, so stay organized.
You can manage these risks if you don’t go into debt unnecessarily, only borrow what you can afford, and regularly review your finances.
Are business loans a good option for students?
Loans may be the right decision if you have a regular and reliable income to keep up with repayments, but that is something that most students will not have. Therefore, a bank loan is unlikely, yet there are a growing number of other lenders vying for attention.
If you are considering any type of loan, pay special attention to:
The total you will pay after fees and interest. With some payday or specialty lenders, this can be double the amount originally borrowed.
Refunds can start while you are still studying or could increase dramatically after graduation, with no grace period if you are not earning.
You should have a backup plan for your loan that includes cash set aside to cover repayments in an emergency, as well as a list of people or organizations that can provide advice or support if you need it.
Alternative sources of financing
The student loan
The student loan covers tuition fees and / or living costs, and is a decent gamble for eligible college students. Although it is an interest-bearing loan, the rates are much lower than the commercial varieties; however, the way repayments work means that interest does not have the impact that it does with private loans.
The key factor is that refunds are tailored to earnings, like a tax: if your salary goes down, stops, or doesn’t start, the refunds stop until you earn above the salary threshold. Any remaining balance after approximately 30 years is canceled.
It’s not easy to avoid paying what you owe, so default is not the trap that it is with other types of loans.
0% student overdraft
An overdraft allows you to spend more money than you have in your account. Banks generally charge setup fees for this, as well as interest on any negative balances, but as the name implies, the 0% overdraft for students is free.
You will need a student bank account to get one, though the bank (and your credit score) will decide your spending limit. This could actually cover living costs, but it won’t extend to fees.
The 0% usually lasts until shortly after graduation. Any negative balance due after this will start to accrue interest. Plan to erase your balance in your final year to avoid additional costs.
Credit cards can be helpful in eliminating budget gaps or expensive but essential purchases, but the key is to pay your monthly statement in full every time. This avoids interest charges and penalties, which means that borrowing is completely free.
If you can’t do this, treat credit cards like loans and compare interest rates and the refundable amount before spending on them.
Credit union loans
A credit union is a kind of community-run bank, so you will need to live in a catchment area or meet other criteria to join one. They can make loans to cover fees, costs of living or emergencies, often with less interest than other lenders.
You’ll need income like a part-time job to pass the affordability assessment, but the assessors will point out the grants, benefits, and rewards to apply for if a loan isn’t on the cards.
There are the usual consequences of non-payment, although your credit union will help you get back on track before things get out of hand. They also foster broader monetary skills, that is, loan programs that generate savings at the same time.
Saving or earning money takes time and effort, but it is risk-free and cheaper than borrowing. Student finance is more than just a loan, too, including non-refundable grants, scholarships, scholarships, travel awards, and support for visible and non-visible disabilities.
Talk to your university to determine these additional funds. Including family in the conversation can also open avenues for advice, parent contribution and other financial support.
Be very careful going into debt if you already owe money, and don’t ignore things if you’re having trouble with repayments. Get advice from your college’s social welfare officer or debt charity Step change.