Pros and Cons of The Newly Approved Student Loans in Nigeria: Impact on Students, Companies, and Global Practices

Introduction:
In Nigeria, the pursuit of higher education has become increasingly expensive, will the newly approved Student Loan Act make or break the economy of the country? While student loans provide immediate financial support, it is essential to examine their pros and cons, considering the impact on students, companies, and global practices. This article delves into the advantages and disadvantages of student loans and explores countries where this practice is prevalent, backed by relevant statistics.

Pros of Student Loans:

1. Increased Access to Education: Student loans enable individuals from diverse socioeconomic backgrounds to access higher education. They serve as a lifeline for students who lack the financial means to pay for tuition fees and related expenses upfront.

2. Educational and Career Opportunities: By offering financial aid, student loans facilitate the pursuit of higher education, fostering personal growth and skill development. Obtaining a college degree opens doors to better job prospects and higher earning potential, thus benefiting borrowers in the long run.

3. Building Credit History: Student loans can provide an opportunity for young adults to establish a credit history. Timely repayment of loans can contribute positively to their credit scores, enabling them to secure future loans for major purchases such as a car or a home.

Cons of Student Loans:

1. Accumulation of Debt: Student loans often come with substantial interest rates, leading to significant debt burdens for borrowers. The accumulation of debt can create financial stress, limiting post-graduation choices and impacting long-term financial goals, such as homeownership or entrepreneurship.

2. Delayed Financial Independence: The burden of student loan repayments can hinder graduates from achieving financial independence. The need to allocate a significant portion of income towards loan repayment may delay important life milestones, such as starting a family, saving for retirement, or pursuing entrepreneurial ventures.

3. Mental and Emotional Stress: The weight of student loan debt can have detrimental effects on borrowers' mental and emotional well-being. The stress and anxiety associated with loan repayments may impact job satisfaction, mental health, and overall quality of life.

Impact on Companies:

1. Limited Job Mobility: Student loan debt can limit job mobility for individuals who must prioritize higher-paying positions to meet loan obligations. This can result in employees staying in roles they are not passionate about, affecting overall job satisfaction and productivity.

2. Lower Retirement Contributions: Student loan repayments can reduce the amount individuals can contribute towards retirement savings. This can have long-term implications, as employees may have less financial security in their later years.
Countries Practicing Student Loans:

1. United States: According to the Federal Reserve, total student loan debt in the United States exceeded $1.7 trillion in 2021, affecting millions of students and recent graduates.

2. United Kingdom: The UK has a well-established student loan system. As of 2021, student loan debt in the UK reached over £160 billion, impacting a significant portion of the population.

3. Canada: Canada also offers student loans to its citizens. In 2019, the national student loan debt in Canada amounted to around CAD 28 billion.

What Is In Store For Students With This New Act?

"LET THE POOR BREATHE," is a well-known quote attributed to the newly inaugurated President, Bola Ahmed Tinubu, which has gained popularity on the internet. President Tinubu has

received applause for various initiatives he has enacted into law. However, does the Student Loan Act deserve the same level of praise?
Throughout history, securing a loan in Nigeria has been a complex process. Financial institutions often demanded extensive collateral, including properties owned by one's parents or even their first car. While the introduction of the salary account lending system somewhat simplified the process, it also imposed limitations on the loan amounts individuals could obtain. As a result, it is unsurprising that Nigerians hold mixed feelings about the Student Loan Act.
According to the Act's provisions, individuals seeking a student loan must have a family income below N500,000 per year. Additionally, they are required to have two guarantors: a civil servant with at least 12 years of service and a lawyer with a minimum of 10 years of post-call experience. Some view these requirements as manageable, while others find them burdensome. It is not uncommon to hear individuals express their frustration, questioning why they need to involve their entire community to secure a loan for a relatively small amount, such as N30,000, when their tuition fees are low.
As per the legislation, Nigerian individuals who avail themselves of student loans are required to commence repayment two years after completing the National Youth Service Corps (NYSC). The education loan fund is mandated to collaborate with the student and their employers in deducting the loan amount directly from the source, similar to the PAYE system.
While this approach is logical, there is an opportunity to enhance its effectiveness. The Act specifies that employers must deduct 10% of the employee's salary, without considering the timeframe involved. To illustrate this, let's consider a scenario. If, upon graduation, my total student loan amounts to N200,000 and my initial monthly salary is N100,000, the education fund would deduct N10,000 each month for 20 months, resulting in debt freedom.
This method resonates with the cultural inclination of many Nigerians, as we generally prefer to avoid indebtedness. However, if we aim to build a society where credit history holds significance, I would suggest a different approach.
Let's introduce options. For instance, if I earn N100,000, can I choose to pay N1,000 per month? This way, I could complete my debt repayment in approximately eight years without experiencing financial strain. Alternatively, can I decide to feel the financial pinch and pay off the entire N200,000 in four months?
By offering diverse repayment options, we empower borrowers to manage their debt in a manner that aligns with their financial circumstances and aspirations. This flexibility would contribute to the development of a society where credit history is valued, while accommodating individuals with varying capacities and preferences for repaying their loans.

A JAIL TERM?

The Act does not address the situation of Nigerians who remain unemployed after the two-year period following the completion of their NYSC. However, it does stipulate a two-year prison sentence for loan defaulters. In the event that I do not secure employment within the designated timeframe, would I be categorized as a defaulter? Would I face imprisonment for being unemployed? Is the poor really going to breathe? It is highly unlikely that I would be considered a defaulter or face jail time solely for being jobless. Nevertheless, it is crucial for the implementation guidelines to provide clarity on this matter.
Conclusion:
Student loans offer both advantages and disadvantages to borrowers, impacting their educational pursuits, career opportunities, and financial well-being. While they provide access to education, they can also lead to significant debt burdens and delayed financial independence. It is crucial for students and policymakers to understand the implications of student loans and develop strategies to mitigate their negative consequences. By striking a balance between accessibility and financial responsibility, societies can ensure that higher education remains attainable without burdening individuals with excessive debt.
In conclusion, the Loan Act signifies that tuition fees will no longer serve as a hindrance for Nigerian students pursuing higher education. It also implies a more focused allocation of funds towards education that leads to employment opportunities, albeit with the potential for national debt to be repaid in the future if not effectively managed.
To provide context, it took the United States 64 years for federal student loans to escalate from $0 to $1.7 trillion. Such a drastic increase is unlikely to occur in our case, primarily due to the absence of compound interest on the debt. However, it is crucial for us to remain vigilant and avoid a similar situation by being mindful of our borrowing practices and debt management.