March 20, 2020

Student Loan: Student Aid or Debt Trap?

More banks have been offering loans to students to help finance their studies.

More banks have been offering loans to students to help finance their studies.

However, after just three years of studying for a bachelor’s degree, a grant of 300 USD per month accumulates over 10,000 USD in debts that must be repaid with interest. Is this path worthwhile for young people who can only afford to study in this way?

Young adults who can neither be supported by their parents during their studies nor receive a BAfög or scholarship often have only one option: the so-called student loan.

Depending on requirements, the student can agree with the banks a payment of several hundred USD per month or only have the bank pay the tuition fees once per semester.

The interest and repayment modalities depend on the bank, 

The interest and repayment modalities depend on the bank, 

So if you decide to take out a loan, you need to be well informed in order to actually find a cheap offer. The German Company therefore put all different credit options to the test in 2012 in order to find the best and cheapest offers.

The most expensive provider on the market right now is Agree Bank, which grants high loans (up to USD 800 per month), but also has them stuttered at an interest rate of just under 8 percent. The cheapest bank, on the other hand, turned out to be the United Cream bank with an interest rate of only 3.76 percent.

The impetus for the granting of student loans in 2005 was the introduction of tuition fees in a total of seven federal states. Although almost all countries have now refrained from taking this decision, around 5 percent of students are still taking advantage of the student loan option; a negligibly small proportion takes up the loan as a student – as a look at the USA shows, where around 95 percent of the graduates leave the university with a large debt.

Ulrich Müller from the Center for Higher Education Development (CHE) therefore considers the situation in Germany to be entirely reasonable: “I do not advertise student loans. But it would also be wrong to advise against this. In the US, we’re talking about $ 40,000 in credit volume and more. There is a much greater risk of over-indebtedness, ”he told ZEIT in 2012. The mood is similar in the German Internet forums, where students who take out a loan exchange their experiences.

Although the loan to finance the study is always considered an absolute emergency solution among those affected, most graduates report that their debts are largely repaid without any problems. The loan can only lead to a debt trap in the event of unemployment or a dropout: after a two-year period of rest, the money is still due. Only if the student receives his money from an education fund will the debt be released in case of hardship. All other lenders agree to postpone the repayment period at most; Over this time, however, further interest accumulates.

 

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