The Harsh Truths about Student Loans

Ah university: empowering the young minds of tomorrow.

At university, you get to study your favourite professional field, get to be independent for the first time, make lifelong friends or even potentially meet your future lifelong partner.

However, university comes at a cost.

Outside of North America, university is generally quite affordable, especially in Europe/UK.

Governments (and banks) can help you pay your tuition fees in the form of ‘student loans’.

Thank God for the government.

What this means is that the government will cover all of your fees while you are a student and once you start working and making an income, you can just pay the government back.

In fact, you don’t even have to worry about repaying it back – every month the government takes a percentage of your income to go towards repaying back your student loan.

Happy days, or so I thought…

In today’s blog, I want to share my experience of student loans, and why I don’t recommend them.

My Experience with Student Loans

In 2018 I decided “I want to go back to university and do a Master’s Degree in Product Design.”

I knew I wanted to do it in England, UK as that’s where a lot of the famous design schools are.

I started to research all the top product design programs and attend all of their open days.

It was really exciting times, I was looking forward to being a student again.

I eventually found my dream course: A one year postgraduate degree course in ‘Industrial Product Design’ at Coventry University, England, UK.

It was also quite affordable: at the time it was around £9500 in tuition fees for the year.

I had saved up quite a bit the year prior, but not enough to support my tuition fees as well as accommodation and living expenses.

Therefore I turned to what I thought was my best option:

“Time to get a Postgraduate Loan from the UK government’s Student Loans Company.”

The Student Loans Company

The Student Loans Company is a UK government body that provides student loans for both undergraduate and postgraduate students in the UK.

For me, this seemed like the ‘best’ choice than to apply for a loan through a bank.

After all, the government has our best interest at heart than some greedy private bank.

As an Irish/European student at the time thankfully I met all the eligibility criteria.

And after a couple of weeks later, I got accepted for the full loan amount: £10,600

This value is much more now as tuition fees increase in value almost every year.

“This is great” I thought to myself, “with this loan I can now cover my tuition fees and have a bit of money extra to cover my living expenses with my own savings.”

Life was good.

And I didn’t have to worry about paying back the loan until I started working, where every month the government would just take a cut without me having to worry about it.

And so I completed my degree in 2018/2019, had a great time, meet great people, didn’t have to worry about finances, graduated, and started working in England the following year.

From April 2020 is when the government started taking money from my monthly pay check on top of national insurance and income tax in the form of ‘student loan repayments’.

The repayments were not that much, it didn’t make a big difference to my take home pay.

At this rate, I’ll pay back my student loan in no time…or so I thought.

Loans Reality Check

18 months go by since I started paying back my student loan.

I had pretty much forgotten about it since April 2020.

Money was going out towards repayment every month and I was happy.

Then one afternoon in September 2021, 18 months after I first started repaying back my loan, I thought “why not open up my student account balance and see how much was left.”

I was excited. This would be the first time I check my balance since I started repayments.

“I must be almost done” I was thinking , “surely in a couple more months I’ll be debt free!”

I had to dig up my login details as it had been so long.

Eventually, I was able to log in and see my remaining balance.

When I saw my remaining balance…I was in complete shock.

This Can’t be Right

Just as a reminder, this was the total value of my student loan:

And this is what I found in my account after a year and a half paying back my loan:

I couldn’t believe my eyes.

“This can’t be right” I said to myself.

How can my loan be worth almost £12,000, almost £1400 more than what I received?!

When I started to dig deeper, that’s when I started to figure out what was happening:

Beware of Loan Interest

It’s worth mentioning that prior to this loan, I had never had a loan before.

Even when I use my credit card, I always make sure to pay back the balance every month to not accrue interest.

However, I had completely forgotten about interest on this loan.

Naively, I had assumed that everything I’d be contributing would be paying back my initial balance.

Please note that interest doesn’t just apply to student loans but all sorts of loans i.e. car loans, business loans, mortgages, etc.

At this rate, I would never pay back this loan and would always been in debt.

My monthly repayments clearly were not even covering the interest added and so my balance was actually increasing every month instead of decreasing.

How could I have not seen this coming.

I then started looking into how long the student loans company would give you before they write off the loan completely. The answer: 30 years!

There is two ways to look at this:

On one side the loan would be written off after 30 years

On the other side I would be in debt for 30 years!

I knew I did not want to be in debt for that long and that I had to do something about it.

Loan Overpayments

Once I discovered this realisation, I knew there was only one solution:

To make further payments every month on top of my salary contributions.

I was not willing to wait 30 years to be debt free.

And so starting last month I started to make further repayments.

And for the first time, I started to see my balance go down:

I started doing the maths:

I would have to contribute £500 per month in order to be debt free in 2 years.

Certainly much more desirable than waiting 30 years, but not easy.

It may take more or it may take less, but one thing I know for sure is that in the next 18 months, I know that my balance will actually have gone down!

Stay away from Loans

Loans can be great in certain situations where you really need the money.

However, in the long term, you’re going to end up paying more than that loan value in repayments.

The solution: just save up the money beforehand and then spend it once you have it.

I know this isn’t always possible (university, mortgage, etc.) or you’d be waiting a long time.

But in certain situations, don’t be tempted to just use your credit card or take out a loan.

It may take a while (months/years) to reach your target amount, but in the long term, it would have saved you a lot more money.

What do you think of student loans and loans in general? Do you have any experiences or tips with loans? Share in the comments below!