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Question:


Should I take out a student loan from the government or from my parents?
-SpoiledYetAccountable


Answer:


Student loans are typically made by banks but guaranteed by government agencies so that interest rates can be kept low; the government generally doesn’t do the lending. It does make the rules that can treat defaulters very harshly, however. Although it is often possible to defer repayment while you’re still in school or can’t find a job, once your repayments start, or are supposed to start, you run the risk of having a black mark against your credit score, being subject to collection actions or being hauled into court if you don’t keep up. Also, student loans are unlike most other forms of debt in that it’s very difficult to get them eliminated in a bankruptcy filing.

Mom and Dad are less likely to garnish your wages or sic the bailiffs on you if you fail to pay them back. Does that mean you should rely on them instead of a bank? If they have the money to spare and can afford to be flexible when it comes to getting it back and you are not using emotional pressure to extract it from them, it may seem as though there’s no harm. But consider that you would be taking the loan from them because the consequences of missing payments are much less severe than if you do that with a bank loan. As accountable and responsible as you may be, you’re only human, and we humans tend to assign a low priority to obligations that are less costly if we don’t honor them. How about a third option: Take out a traditional student loan but ask your parents to provide a backstop by agreeing to lend you money to keep up repayments if you run into difficulties after graduation.

-Conrad de Aenlle



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