The financial impact of borrowing education loans to study abroad
As more and more individuals move out, earning a degree from an international university may sound fancy and appear aspirational, but there are expenses associated with it, and handling them is not always easy.
Although obtaining student loans is now quite simple, statistics suggest that few people appear to be aware of this. Although more students are traveling to study abroad, there are also more defaulted student loans.
The Indian Banks’ Association said that as of March 2018, there were around 9% more education loan defaults than there were in March 2016 (7.3%).
Data from the Mumbai-based credit agency CRIF High Mark reveals a rise in the average amount of new loans disbursed annually.
The average ticket size for new student loans as of September 2018 was $8,95,000 compared to $7,08,000 at the end of FY18. “Indian demographics favor youth and high academic achievement, which boosts employability. Due to rising educational costs, the majority of students need loans.
The number of students who can obtain employment based on non-immigrant visas for temporary workers is capped under the new H1B visa laws in the US, which is one of the factors contributing to the shrinking of the ability to repay loans.
Each fiscal year, there is a cap of up to 65,000 visas, with an additional 20,000 visas reserved for those who have obtained their master’s degree from a US university.
However, a much bigger number of people apply for the H1B visa. 236,000 applications were received by US Citizenship and Immigration Services (USCIS) in FY17.
Thus, the student’s employability has greater significance. The student and the guarantor can experience more financial strain if that market slows down.
How to avoid the negative long-term consequences of education loans?
1. Avoid Purchasing a Home
One’s capacity to buy a home is severely impacted by student loan debt. In a 2015 survey by Equifax, 55.7% of millennial renters cited “school loan debt/not enough money saved” as their main deterrent to home ownership.
Even if you have the ability to make the required monthly payments, paying down student debts may prohibit you from setting aside enough money for the minimum down payment needed by many lenders.
2. Live and work at Home
While some renters cannot afford to buy a home, other millennials with student loan debt, particularly those who reside in large cities like New York, Chicago, or Boston, cannot even afford to rent apartments.
According to Apartment Guide, the national average rent for a one-bedroom apartment in the US will rise from $1,596 in 2019 to $1,621 in 2020.
When you have a student loan debt of approximately $30,000, that might be pretty difficult to pay. Many of these young adults choose to stay in the nest since their income is insufficient to cover their rent and school debt repayment.
3. Bringing Down Your Net Worth
Significant student loan debt can undoubtedly lower your overall net worth. There are differences between college graduates with and without student loan debt, according to a 2014 Pew Research Center analysis.
A household led by a college graduate under the age of 40 who has student loan debt had a median net worth of $8,700. On the other hand, the median net worth of a household with a college graduate under 40 and no student loan debt is seven times higher, coming in at $64,700.
4. Postpone your dreams
Your standard of life and financial independence aren’t the only things that are impacted by student loan debt. It also decides which of your dreams you can pursue and which ones will only serve as a faint recollection.
You can find yourself forgoing a career with better compensation for one that provides you with a greater sense of fulfillment and purpose.
For instance, you might aspire to work for a charitable organization. But if you find out that the money that comes with it could not be enough to cover your financial commitments, you might have to give that up.
In reality, you’ll have to give up on these goals in favor of a higher-paying position so you can make your student loan payments.
5. Student loan debt persists
Debt from student loans is distinct from other forms of debt. For instance, if a customer can’t afford auto payments, they can return the vehicle to the dealer, and if a homeowner can’t make their mortgage payments, they can return the keys to the bank.
Your student loans are not subject to that rule. Nothing is left to return when you complete the student loan repayment process. Whether you used the money for education or not, it has already been spent.
More students are taking out education loans to pay for their education. It’s crucial to understand the repercussions of borrowing money and to be self-disciplined enough to borrow what is necessary before even considering taking out a loan.
Make cautious arrangements to repay your loans when you borrow, making sure to account for the earnings you can anticipate after graduation in the sectors that interest you.