About 2 weeks ago, I wrote my first article of my “Friend or Foe” series looking at the pros and cons of having a credit card. As dealing with financial products becomes more and more complex, I thought that exposing their advantages and disadvantage could be a great idea. So today I am looking at student loans. While their existence is essential for many people if they want to get a good job, their use is not always for the greater good.
Student loans are pretty useful!
In an economy where service and knowledge are key, getting a decent education is the very first step if you wish to live a comfortable life. The only issue is that education is quite expensive and most parents cannot afford to pay the entire college tuition on their own for each of the children (especially if they have 4 of them!). So what do you have left to finance your studies? Certainly not your credit card!
Some students are able to work part time while going to college. I did that personally, working 15 to 25 hours a week while going to school full time, it sounds like a good idea. It will not only bring you more money but it will also force you to get organized, start your journey in the working world while building your network. Unfortunately, those few hours won’t be enough to cover all your expenses.
This is how student loans come into play. They offer a low interest and low payment schedule (that usually only starts once you finish your degree) to finance your college expenses. It is the best financial product to finance your expenses because of its flexibility and low cost. Since you are starting your life, it is not the right time to handcuff yourself with rigid financial products!
How a student loan can get you in trouble?
I have seen many people getting the biggest student loans they are entitled to year after year. They were thinking they could use this money to buy a car, new clothes or treat themselves to a vacation. Remember dear friends, if you don’t have to pay for it right now, it doesn’t meant that it’s free.
When you finish school with student debts exceeding 35K, I hope for your sake that you are a now a doctor ;-). If not, you can be paying back your student loans for a very long time.
As it was the case when I reviewed the credit card, student loans can be a weapon of massive financial destruction if you use them based solely on the fact that you don’t have to pay it back right away.
I should have used student loans
I was lucky enough to receive help from my parents to pay for my tuition. I also made the choice to work full time (35 hours/week) while studying. Therefore, I finished school with no outstanding student loans. However, I could have used this money to build assets.
Investing money that you borrowed, paying a low interest on and that you don’t have to pay back right away could have been the best leveraging opportunity that I missed.
I’m not saying that you should get student loans to leverage this money but if you don’t need financial support, maybe getting a few bucks to invest in the market or buy your first property could be an interesting move. What do you think?