Student loans are often considered as ‘good debts’ as the loan amount you take is generally an investment in yourself, for your better future. However many have the view that such loans can be highly risky and if you default on such loans you can end up with debts from the student life itself. The debts can in turn be responsible for a negative credit report which can create a problem in your job profile later. It is one of the reason why financial consultants advice students to search for alternatives rather than bank on a loan. Given below are some of the risks associated with student loans that you should keep in mind:
- Incomplete education: There are times when the student may decide to drop out of the classes and not complete the education further. Though there facilities to ‘add/drop’ from the college whenever anyone wishes, the refunds are not always made completely. Only a proportion of the refund is made to the student. However the loans that they had taken previously for the education purpose does not undergo any reduction. Instead of paying them after the grads the student also needs to start payments along with the interest rates just after they drop out.
- Defaults on loan payments: The problem with student loan debt is that unlike other debts it cannot be discharged in bankruptcy courts. It means you cannot shake off the payment of student loans by any means. If you default on your loans you may have to face dire consequences for it. The collectors, lenders along with the college will hold all the right to take collective action against you for the payments.
- Low Return on Investment: It is seen that the students who took loans to finance their studies do not always get jobs of considerable salaries after graduating. As such paying the loans along with the interest becomes difficult. During this time many also shift jobs due to dissatisfaction or low salaries. So it turns out to be a time of turmoil and instability when just the basic repayment becomes a tedious task instead of expecting high returns.
- Negative impact on Credit Report: The worst part of defaulting on student loans is that it will lead to a negative credit report and you will not be allowed to take any further loans till you repay the previous ones. Even if you make payments on time there are parameters to determine your credit worthiness or whether you are eligible for further loans in future.
- Loopholes in Terms and conditions: There may be issues in the repayment process if there are any loopholes in the loan application form. If you miss out on any important details you may have to pay more during the repayment process. So it is advisable that you check the norms judiciously before signing.