LONDON — Many people associate the word “loan” with bad things such as financial problems, interest, big installments and even bankruptcy. However, thanks to improvements in financial literacy, people have become more aware that the right loan can be an investment, too. Loans for business, home purchases, or maybe cars are things that people consider investments, but how about a loan for education?
If we compare with those in the United States, based on data from Student Loan Debt Statistics for 2018, student loans reached almost US$1.5 trillion, spread over 44 million borrowers in 2017. More than 70 percent of students graduate with debt. According to the World Bank ( 2018 ), as of 2017, the US had gross domestic product (GDP) per capita of $59,531, while Indonesia $3,846.
Taking these facts into account, one may roughly conclude that people in the US consider education an investment so they are willing to take a loan out in order to get a promising job or build a solid business after graduation to make good money.
Of course, the takeaway is not as simple as that. Around 4.3 million students who took out loans faced default in their repayment. Other factors contribute to GDP per capita that won’t be further discussed. Student loans can be a doomed decision. So, is it an investment or just another term of “loan”?
I am currently an MBA student at Imperial College Business School in London. Lucky enough, I got a Chevening scholarship from the UK government and a merit-based scholarship from the university to cover my tuition fee, otherwise I probably wouldn’t be here. I never considered a student loan back then. It was not an option. Only a scholarship could help me. No plan B.
I was quite shocked when I found out that around half of my classmates had actually taken out loans. However, as I learn and observe more from my friends, I gradually understand the position of student loans. Indeed, it can be an investment if you decide and treat it right.
Let’s begin with the benefits of a student loan.
1. It will force you to study harder and more seriously
Sounds cliché, but that’s the truth. Those with student loans will think about how they can repay the loan installments but still manage to have a good life. They want the best job available or build the most promising business. They won’t waste their time doing unimportant things, because studying or making connections are priorities.
2. You become more responsible with money
You do not want to spend your student loans on anything unrelated to your education. You are on a tight budget, thus you will be more organized with spending money. It is no longer a secret that some Indonesian scholars take their scholarships for granted. They misuse the money for other stuff that do not have a positive impact on their studies.
3. You will be encouraged to get a part-time job, internship or join a competition
You are being responsible with your money from your loan, but you also want to enjoy life. Many of my friends were very motivated to search for a good internship and take part in competitions to earn additional money. We had a full-time school schedule almost everyday, making it hard to have part-time jobs, but I believe that some other courses are more flexible and you can utilize your free time to not only earn more money by getting a part-time job but can actually gain some work experience.
4. You are not obliged to return to your home country
Scholarships such as Chevening and LPDP require you to return to Indonesia after finishing school, meaning you will not be able to work overseas. However, it is a different story if you do self-funding or get a student loan. You can apply to any company in the country where you study or anywhere around the world.
Now, at least student loans do not seem that cruel anymore. However, people can only obtain those benefits if they make the right decision to take out a loan. Student loans are not always the best solution, and I would recommend considering these points before making a big decision that will change your life:
1. You know why you need this specific education and what you want to do after
In order for an education to be an investment, it needs to generate some returns in the future. Returns can be salary, promising business, connections, publication, etc. If you think you still can achieve your dream without this education, then you need to reconsider. If you can enroll in a similar course of the same quality at a university in Indonesia, why go abroad? If you are certain the course will give you value but you cannot see yourself doing anything related to it, then why bother?
Students often pursue a master’s degree because of awry reasons such as social pressure or just to get an overseas degree. In that case, their education is no longer an investment and they need to stay away from student loans.
2. Your school is one of the best and well-known in the world
When some crowds say that school ranking is no longer important nowadays, they are wrong. I can see from my own experience that only top schools get invited to big company events, including recruitment events. Connections are wider in top schools. Most respected people graduated from top schools and they sometimes return to be a guest speaker. Alumnus from top schools are spread out in giant corporations or on the government ladder.
Last but not least, venture capitalists usually only look into projects from top schools. When you receive an offer from a top 10 school in the world for the subject you are in enrolled in, then student loans will definitely be worth it.
3. High possibility to work in the country where you study
If one of your plans is to work overseas, then this point is significant. In some countries in Europe, such as the Netherlands and Germany, it is easier to obtain a work permit. It is, however, much harder in the UK, especially during Brexit. However, four universities get the privilege of having a longer student visa period, where students can remain in the UK for six months after their course finishes, to support their postgraduate students in securing a job. They are the University of Cambridge, University of Oxford, Imperial College London and University of Bath. There are, however, 23 other UK universities that just joined the scheme. But you may need to check the details and requirements for each university.
It is usually more convenient to search for a job in a country where you already have basic knowledge on how the country works. On top of that, universities usually have more connections with companies and people within the country.
If you treat your student loan right, it can turn into an investment that can change your life.
The writer, Monika Pratiwi, is a master’s of business administration candidate at the Imperial College Business London and a Chevening scholar.