While borrowing money is generally a bad idea, a student loan is an exception. For individuals who work hard, get their qualifications and manage their loan repayments, a student loan can lead to wealth creation.
According to Advtech, within two years of gaining work experience, a graduate with a three-year degree earns double the salary of a matriculant with five years’ work experience.
To put that into some perspective, if a 24-year-old matriculant with five years’ work experience is earning R15 000, a 24-year-old graduate who has completed three years of tertiary study and two years of work experience, would be earning R30 000. That differential is worth around R6.3 million, in today’s value, over a 35-year career. This figure probably understates the real figure as graduates have more opportunity for promotion and career advancement.
The key to borrowing money to study is understanding that you’ll be paying for that education for several years into your working life. This is a concept many students don’t grasp; if they took out a loan to buy a car, they would see it every day, drive it every day and know that it can be taken away if they don’t meet the payments. While an education cannot be taken away, it does need to be paid for.
For the first two years of working it will be tough – a degree alone does not guarantee you a higher salary. You have to become useful in the workplace by learning skills specific to that industry before you can be promoted. This is not the time to start taking out store cards or buying a car. You will be focused on meeting your student loan repayments while working hard to get skilled-up enough to deserve that promotion.
Once you’ve broken through the learning stage and are starting to earn an experienced graduate’s salary, then you should focus on settling that student loan as quickly as possible. Again, this is not the time to start spending or borrowing, as tempting as that may be. Banks will be quick to provide you with credit cards, personal loans and car finance – avoid these until you have paid off your biggest asset – your education.
Only once that education, which has opened doors for you, is paid for, can you then start looking at enjoying the lifestyle you have worked hard for. Just remember that this is unlikely to happen in the first five years of your working career. So be prepared for that, because in the end, it will all be worth it.
This article first appeared in City Press.