Reasons for taking out a student loan

Before they start their studies, many students ask themselves how they will pay for them. Without financial support from their parents, BAföG (Germany's federal student aid) or a scholarship, paying for college is a major challenge. Students suddenly face high everyday expenses such as rent and utilities, plus semester fees and textbooks for their courses. Anyone studying at a private university can also expect monthly tuition and even exam fees. Without government or parental support, college is a very expensive undertaking for the student and, in many cases, a considerable challenge. So the reasons for taking out a student loan are easy to understand, and the student loan is an increasingly popular way for students to finance their studies.

[caption id="attachment_484" align="alignright" width="457"]Financing Female student[/caption]

Student loan: opportunity or debt trap?

However, a student loan often also carries binding risks and consequences that the student takes on when borrowing. At first glance, a loan for your studies seems like a quick fix and the ideal solution to the financial problem. After all, when taking out such a loan, the student has a fixed amount transferred to their account every month, which they can use to cover their living costs. As a rule, students even have up to two years after finishing their degree before repayment has to begin. But if the student graduates much later than planned, drops out, or has trouble finding a job after graduating, the loan can quickly become a heavy burden. Dropping out in particular usually leads to serious problems with the lenders. Often the loan payouts are stopped immediately after the student is withdrawn from the university roll (exmatriculated) - and repayment usually becomes due right away! Not every lender offers the option of continuing to support the student and the loan if they resume their studies.

If the degree is not completed on schedule, meaning the student exceeds the standard period of study, they also have to expect complications. If the student doesn't start repaying on time and thus overruns the repayment period, the lender demands high interest, which turns the student loan into an ever-bigger debt trap. Reducing installments or deferring payments is only very rarely possible. In extreme cases, the student faces personal bankruptcy.

Anyone who wants to use the student loan as an opportunity should therefore ask themselves before starting their studies whether they have what it takes to finish the degree on time. Anyone who is unmotivated and unsure should forgo a student loan. It is advisable to take enough time to compare student loans from different lenders and so find the best possible provider. It is especially worthwhile to examine the fine print thoroughly before signing the contract.