The vast majority of the student population around the world rely on government or private loans to fund their higher education. College is a costly undertaking as it is, but the rising cost of living is putting the squeeze on young academics who are tasked with balancing their studies with managing financial responsibilities – potentially for the first time in their lives.
Understanding how your student loan works is often an afterthought for young students, who tend to focus on the independence it can offer them instead. However, taking the time to educate yourself on the implications of taking a loan for university, and knowing how it might affect your financial future is key to setting you up for success after graduation. Here are three ways a loan can influence future financial outcomes.
Credit score
In the U.S., your student loan can have a direct impact on your credit score, since both your repayment history and outstanding amount will be included in your credit report. This can be either a positive or a negative thing, depending on how well you manage the debt: making regular payments on time will give your credit score a boost, while making late payments or missing them altogether will have the adverse effect.
Even in your college years, it’s important to establish healthy financial habits that contribute to a higher credit score. This will mean you’re more likely to be accepted for new lines of credit by lenders, and you could also benefit from more favorable terms to further boost your financial wellbeing. This will be particularly important when it comes to the bigger milestones in life like buying your first home.
Influencing your career path
A secondary impact you might never have considered is the possibility of your student loan debt influencing your career choices. When we enter the world of work with the burden of debt, people who aren’t in the fortunate position where they’re able to manage it properly could look towards jobs that will offer better remuneration packages to offset their loan payments. Unfortunately, these jobs don’t always necessarily align with their long-term ambitions.
STEM students often enter into highly specialized careers after graduation. However, it’s common in these industries for young people to accept entry-level or unpaid positions to gain important experience. For anyone that’s stressed or concerned about how they’re going to make repayments on their loan, this luxury might not be an option. In the short term, finding a job based primarily on the salary could help to ease some of the pressure, but becoming comfortable in a profession you don’t enjoy can soon become detrimental to other aspects of your wellbeing.
Savings and pension
For young people who are just starting out in their careers, savings and pensions might not be top priority. However, to promote better financial security later in life, it’s important to instill good savings habits from a young age – and this includes making frequent payments to your pension pot.
Naturally, making regular repayments on your student loan can inhibit your ability to boost your savings each month. At the same time, if you already have a healthy chunk of savings stored away, you might decide to use that money to make some extra repayments. Providing you’ll still have the funds you need to live comfortably, paying off your loan early can reduce interest charges meaning you end up paying less.
Support is available
If you’re concerned about the future burden of student loans, you’re not alone: 94% of respondents to one survey expressed significant concern about how they’ll pay back their loan. Make sure you utilize the advice available online, and you can also get in touch with your college, who will be able to guide you through the process and suggest potential avenues of support if you’re unsure or concerned.
Author bio: Craig Frommer
Craig has worked in education since graduating over a decade ago, and is passionate about supporting students throughout university to prepare them for future success, in and out of the workplace.