Should I take a personal loan for my postgraduate studies?

Question

About 6 months ago, I embarked on a Master's degree. Prior to this, I did the math on the postgraduate program and set aside about $31,000 on a separate savings account just for the postgraduate studies.

Recently, I am contemplating to buy an apartment. It's about $175,000 and I am planning to take $15,000 from my postgraduate savings account plus my other savings account to pay for the apartment's down payment. As for the remaining $15,000 for my studies, I am thinking about signing up for a personal loan which should set me back about $738 per month over 2 years.

As for the apartment, I am only able to borrow up to $146,000 and it should set me about $766 per month over 30 years.

I do not have any commitments as of right now. My gross salary is about $52,800 per annum. I used to have a car loan but it was fully paid off as of May this year. General living expenses is about $600 per month (average) and my current rental is about $1100 per month. I do not have dependants as well. So my question is, would it be feasible for me to take up a personal loan for my postgraduate studies? As of right now.

Answer 1

If you are eligible for FEE-HELP then this is by far the cheapest way of financing higher education in Australia.

Answer 2

I would not take this personal loan.

Let's look closer at your options.

Currently, you are paying $1100 a month in rent, and you have all the money saved up that you need to be able to pay cash for school. That's a good position to be in.

You are proposing to take out a loan and buy an apartment. Between your new mortgage and your new personal loan payment, you'll be paying $1500 a month, and that is before you pay for the extra expenses involved in owning, such as property taxes, insurance, etc. Yes, you'll be gaining some equity in an apartment, but in the short term over the next two years, you'll be spending more money, and in the first two years of a 30 year mortgage, almost all of your payment is interest anyway.

In two years from now, you'll have a master's degree and hopefully be able to make more income. Will you want to get a new job? Will you be moving to a new city? Maybe, maybe not. By refraining from purchasing the apartment now, you are able to save up more cash over the next two years and you won't have an apartment tying you down. With the money you save by not taking the personal loan, you'll have enough cash for a down payment for an apartment wherever your new master's degree takes you.

Answer 3

As mentioned in the comments, there are costs associated with owning & living in an apartment. First you have to pay maintenance charges on a monthly basis and perhaps also property tax. Find out the overall outgoings when you live in that apartment & add the EMI payments to the bank, it should not be way higher than your current rent. As an advantage you are getting an asset when you buy an apartment & rent is a complete loss, ast least financial terms.

So, real estate is in general a good idea over paying rent.

As for the loan part, personal loans are by far the most expensive of loans as they are in general unsecured loans (but do check with your bank). One way is to try and get a student loan, which should be cheaper.

If you can borrow from family that is the best option, you could return the money with perhaps bank fixed deposit rates, it is better to pay family interest than bank.

If none of the options are workable, then personal loan is something you need to look at with a clear goal to pay it off as soon as possible and try to take it in stages, as an when you require it and if possible avoid taking all the 15,000/- at once.

Answer 4

I would delay purchase of a condo or apartment until you have at a minimum, 6 months of living expenses including mortgage set aside in other investments that could be liquidated. If you lost your source of income though disability or layoff or an unexpected termination of a grant, you need to have that cushion or a significant other whose salary can sustain payments.

You could lose a lot if you either cannot make the payments and/or the value to the apartment dips greatly. Many folks in the recent housing bubble and Great Recession learned this the hard way. Many lost their entire investment by not being able to make payments AND seeing their house lose 1/3 of its value.