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Why Taking Out Loans Makes Sense for All Income Levels

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#loan #education #wealth #investment
Published
08/23/2021

Earning a degree has never been easier. Most people who want to attend college usually qualify for some type of financial aid, all or some of which never needs to be repaid. However, not everyone falls into this category. Students whose parents earn a certain amount of money usually don’t qualify for federally backed loans. The same holds true for students who are classified as independent. If their annual salary is above the threshold, they typically don’t qualify for grants. So, if these students have the resources to go to college and not apply for loans, why do they still do so?

Preserve Wealth

Building wealth is a two-step process. You first need to earn it and then know how to preserve it. Those who come from wealthy backgrounds or have a high annual income know that saving money takes an air tight strategy, and that means taking out loans when deemed necessary. Going to college is a significant investment, one that can drain your bank account quickly. Utilizing student loans keeps your or your parents money in the bank while also letting you pursue a degree.

Build Credit

Building credit is another reason people take out student loans. Having money doesn’t automatically equate to having good credit. In fact, if you’re just starting out, you might not have any credit at all. Taking out a student loan, whether on your own or with a co-signer can help build a positive credit history. If you fall into this category, you might want to consider applying for a loan with a private lender. Having them available for those who need funds, private lenders can offer affordable repayment options and lower interest rates as well. It’s important to note that if you need a co-signer, their credit must be in good standing. Once you start repaying your loans, your payment history will be updated every month, which will help boost your credit score and overall credit worthiness.

Access to Prestigious Education

Just because someone is considered wealthy doesn’t mean they can afford an Ivy League school. Tuition at these types of learning institutions can run into the hundreds of thousands, so using student loans gives borrowers the opportunity to attend prestigious universities that they otherwise couldn’t afford. And it’s this type of borrowing, known as good debt, that can build wealth over time. Good debt is different from bad debt, like unpaid credit cards or car payments. Good debt has an objective, which in terms of loans, is the premise that earning a degree will be instrumental in finding a job that pays well and is in your desired niche.

Tax Benefits

Finally, there are a variety of tax benefits associated with student loans. You can usually claim the interest on student loans, which may lower your tax liability. In short, the interest you or your parents pay is considered a tax write-off, which reduces taxable income. This also applies if the loan was used to pay on educational expenses, which includes tuition, housing, and other supplies needed while attending college.

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