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Student loans – a legally unfounded business

Student loans – a legally unfounded business

Student loans enjoy increased popularity as a means to finance one’s studies and living expenses. Especially students that are not entitled to or else receive too little student grants usually welcome this form of financing. As probably any student knows, student loans must be repaid plus interest at a certain point in time. What the great majority of students might not be aware of, though, is that banks‘ business with such “loans“ is without any legal foundation.


Background: Loans vs book money

Student “loans“ are not loans in the legal sense. According to the legal concept of loan, the essential characteristic of a loan lies in entrusting capital for a specified period in return for payment of interest so the other party can use it for its own ends. It is thus an unconditional prerequisite of the granting of a loan that the party granting the loan (creditor) makes certain assets (capital) available to the party receiving the loan (debtor), thus renouncing the right to dispose of the relevant assets for the specified timeframe. With student “loans“, the situation is quite different. To be sure, the bank grants the student something that the student can dispose of within the defined period; but what the student can dispose of is not an asset which has been transferred by the bank because – and this is crucial to understand – what the student disposes of did not exist prior to the “loan“ agreement with the bank. What the “borrower“ is granted by the bank is not money in terms of something with legal tender status (notes, coins) – it is so-called book or fiat money. In and of itself, book money is not legal tender, it is a claim for legal tender in the form of deposits in a bank account. Ultimately, those deposits are created by a mere booking process within the bank’s computer system whereby the bank books the “loan“ amount as debt twice in its balance sheet: once as a claim against the client on the asset side of the balance sheet, once as a liability towards the client on the liabilities side of the balance sheet.

 

Excursus: Creating money out of thin air

Contrary to what is commonly believed in business and politics to this day, the granting of “loans“ through commercial banks does not transpire based on its clients‘ savings. “Loans“ are granted by the bank crediting the “loan“ sum as so-called “demand deposit“ to the client’s current account after the client has agreed to the transaction by signing the contract. Thus, the creation of the “loan“ sum takes its origin solely from the client’s willingness to enter into a “loan“ agreement and therefore, to pay interest on something that did not even exist prior to the contractual agreement. The conception that banks proceed in the manner described when granting “loans“ is not – as many polemically state – an unfounded “conspiracy theory“, as is not least revealed in a recent study by economics professor Richard Werner (“Can banks individually create money out of nothing? – The theories and the empirical evidence“, 2014), that provides empirical evidence for the above-described booking process through banks, i.e. the creation of money “out of thin air“.

 

Conclusion

Student “loans“ do not qualify as loans because when a bank grants a “loan“, it does not transfer any capital to the client; it merely credits an amount to the client’s account. If student “loans“ were genuine loans, the bank would book the “loan“ sum as debt only once, as a claim against the client on the assets side of the balance sheet. This, however, is not the case. As money that is created out of thin air, i.e. that comes into being as a result of a “loan“ agreement, there is no legal foundation for student “loans“ whatsoever. For, what happens when a bank grants a “loan“ is merely an exchange between the student’s debt towards the bank (the signed “loan“ agreement in terms of a security paper) and the bank’s debt towards the student (the book money credited after signing the “loan“ agreement). The debt claims, then, balance each other out. Since students seeking a “loan“ do not receive anything from the bank in the strict sense of the word, there is nothing to owe to the bank either. It follows that, legally speaking, there is de facto no legal basis for banks to claim either “repayment“ of the “loan“ amount nor payment of any interest that go with it. It is nothing more than a tacitly accepted convention.


Studying in the wrong direction? Switching courses of studies as a way to get on the right track

Studying in the wrong direction? Switching courses of studies as a way to get on the right track

It is a very common problem among students to have some doubts and feel insecure about the course of studies they are on. Switching courses is a big step to take and can be a stressful experience with numerous factors to take into account. However, it is definitely not the end of the world and many who have already gone through it claim to be worth it in the long term. The sooner after the beginning of their studies students find out and look for a solution, the better it is. However, in order to avoid making rushed decisions, which would probably not lead to the desired result, there are a few things students should carefully take into account beforehand.


Obtaining the necessary information

First of all, it is important for students to make sure that their current course is really not the right fit and switching studies is not a decision to further regret. In order to avoid making the same mistake twice, it would also be relevant for students to ascertain whether that they would be successful in the new direction they are planning to take. They can do so by researching and attending some of the classes on the course they are willing to move to. The closer it is to their current field of studies, the easier it would be to switch, as it would not be necessary to repeat certain modules. Changing the department or the university normally requires carrying out more complicated procedures. Nevertheless, the good news is that the main goal of universities is to meet students’ needs and help them cope with various issues by providing them with a wide range of options.

 

Seeking consultation

From there on, it is advisable for students to get in touch with their tutor or department office and explain the situation they are in as soon as possible, as they might be allowed to change courses early in the academic year, but the amount of time available for that to be limited. Students will be given information as to what kind of options they have, if it is likely to be considered as suitable candidates, how to proceed to transfer to a different course or university, and how this would affect their career prospects and funding. The financial implications that the change of studies might result in vary depending how students are planning to switch studies and how much time they have already spent studying. Making an additional appointment with a finance advisor could shed light on these questions.

One of the ultimate sacrifices students might need to make for the sake of career growth in the area they have discovered to be a better match for them is starting their degree from the beginning.


Studying Law in Germany – a curse or a blessing?

Studying Law in Germany – a curse or a blessing?

Law has always been among the most popular study programs worldwide. Studying Law is considered reputable and honorable, but it is not an easy path. The length of Law degree programs in Germany is approximately seven years and graduates are not guaranteed a job. Hard work and determination are just some the qualities future lawyers need.


Being a law student in Germany is considered prestigious and highly appreciated, never-outdated. But does that mean that it is the best way to take? One thing certain – it is definitely not the easiest path that a prospective student can choose.

Many young people are oftentimes not enough informed about everything they can expect during their study period. They might have false expectations that lead to doubts in law students' minds when it comes to the choice they have made for themselves. It is advisable to consider the pros and cons related to pursuing a Law degree in Germany before making a choice.

Pros

Students who decide to pursue a Law degree can benefit even if they change their direction at some point of their life. While studying Law in Germany, however, participants gain a great skill set that includes understanding of different legal processes, as well as critical thinking and analysis capabilities. A law degree can be helpful not only for completely different career fields, but also in the everyday life when signing different papers and contracts written in complex legal language. There is no doubt that law students are more aware of where to put their signatures on and know their rights as well as obligations in every situation.

When it comes to the goal that most of law students are pursuing – a career as lawyers, graduates from the top German universities that offer Law degree programs do not necessarily need to go job hunting. Every year, the human resources departments from the best law firms in the country are making sure that they will not miss talents among law students. Participants have to show a high motivation and real proven results. Obviously, there is no guarantee that every law student will become a lawyer after the study process is finished. It is a competitive job market where graduates need to be qualified and ready to face the challenge.

Cons

The German Law educational system is predicted on the idea that students should understand the law and its system in general, so that they can apply that knowledge in each legal career in every field of law. The length of the Law degree programs, as well as the full-reaching teaching methods offered at the German universities also stay behind the same goal. The final result is that the whole course of studies takes approximately seven years, including the placement year.

In addition, even once former law students become established lawyers, the income is often determined by the hours billed. That means that the more they work, the more money they make. Time is definitely among the investments law students will have to make from the first day of lectures until the very end of their careers, provided that they want to work in the legal field.

What future law students need to decide is whether they are motivated enough and will be able to put their efforts in the learning process during all these years. Whether they are ready to spend thousands of hours in the library reading and preparing themselves either for the exams or for the next debate that is organized by the university. In any case, it will be neither short nor easy.


Obtaining a Master’s degree without any academic background

Obtaining a Master’s degree without any academic background

It is possible in Germany to enter a Master’s degree program without any prior first-degree studies. Amendments in the German university law have permitted non-academics to obtain a Master’s degree, but there are some restricting factors, such as other admission requirements, division among the federal states, and a high study cost.


Anyone who still believes that gaining access to a Master’s program is impossible without prior completion of any first-degree studies is mistaken. Due to certain amendments in German university law, it has been generally possible since 2006 for non-academics to embark on a Master’s program as well, in some cases even on a part-time basis. While opponents fear that the alternative way to obtain a Master’s degree may lead to the degree’s devaluation, proponents consider it an appropriate means to counteract skill shortages as well as to increase career opportunities.

Prerequisites

In practice, however, it is not as simple as all that. Obtaining a Master’s degree without an undergraduate degree has its price, both literally and figuratively. Aside from certain admission requirements applicants have to meet (higher education entrance qualification, professional qualifications, aptitude test), and which may vary depending on the respective university or academy, Master’s programs that do not require a Bachelor’s or undergraduate degree usually involve considerable financial cost. The average study costs amount to EUR 10,000.

Added to this is the fact that Master’s programs for non-academics are not approved in all federal states. Thus the location of the respective educational institution is crucial. Among federal states that are generally open to the option of obtaining a Master’s degree without any academic background are Rhineland-Palatinate, Hesse, Bremen, and Hamburg. Federal states that have so far rejected the idea of opening the educational market, meanwhile, are North Rhine Westphalia, Baden-Württemberg, and Bavaria.

In addition, it should also be taken into account that alternative Master’s programs are restricted to particular professions. In most cases, the programs in question relate to the fields of economics, engineering, and social sciences. Hence, when searching for an opportunity to take part in such a program, flexibility is a key prerequisite, although in many instances there is the possibility of distance learning programs.

Educational institutions that provide Master’s programs without undergraduate degrees

Those who consider taking part in a Master’s program without academic background have the opportunity to apply for a place to study at the educational institutions mentioned below, without this list purporting to be comprehensive: Mittelhessen University of Applied Sciences, Hamburg School of Business Administration, Wiesbaden Academy of Administration and Economics, University of Mainz, Frankfurt University of Applied Sciences, Kaiserlautern University of Applied Sciences, Ludwigshafen University of Applied Sciences, Koblenz University of Applied Sciences, Diploma Hochschule, Worms University of Applied Sciences, Heidelberg Management Academy, Europäische Fernhochschule, Magdeburg-Stendal University of Applied Sciences, Trier University of Applied Sciences, Akademie für Unternehmensmanagement Monheim, Danube University Krems (Austria), Martin Luther University of Halle-Wittenberg, Graduate School Rhein-Neckar, Münchner Marketing Akademie, Friedrich-Schiller University of Jena.


Potential implications of “Brexit“ for EU and UK students

Potential implications of “Brexit“ for EU and UK students

The United Kingdom’s decision to leave the European Union has paved the way for a number of changes both for UK and EU citizens. However, the consequences for students are still quite uncertain. As of now, there have not been any differences, but changes in tuition fees and visa requirements could occur.


Given the outcome of the June 23, 2016 referendum and the February 1, 2017 passing of the EU exit bill in the House of Commons, “Brexit“ – i.e. the United Kindom’s exit from the European Union – is virtually decided. What is less clear than the decision of the British people to leave the European Union is the repercussions this historic step will have for students from both the European Union and the United Kingdom. This is particularly true for the period following March 2019, i.e. when the two-year negotiation period will be coming to an end.

Potential changes for EU students

As far as the 2017/2018 academic year is concerned, no changes occurred. First-time students could commence their studies under the same conditions as those that applied before the vote to leave. Thus tuition fees (where required) as well as grants and financial aids remained on the accustomed level. As of now, the same cannot be said about the 2018/2019 academic year, however. With the exception of Scotland where new students are guaranteed the same conditions for the entirety of their study program as well, changes anywhere else in the UK are likely to happen. In the long-term, changes regarding fees and grants hinge upon how Brexit will affect the British pound. If the pound falls in value on a sustainable basis, studying in the United Kingdom will likely become more affordable. If, on the other hand, it increases in value, students from the European Union should be prepared for higher tuition costs.

Other potential changes relate to visa requirements. Should the United Kingdom decide to withdraw from existing agreements on the free movement of persons, it is likely to assume that EU students will have to apply for the necessary study visas in order to be allowed to study in the United Kingdom.

Potential changes for students from the UK

Students from the United Kingdom who seek to study within the European Union should be prepared for certain changes in the future as well. It can be assumed that UK students, in terms of being future third-country students, will have to both pay higher tuition fees and apply for student visas. Depending on how exchange partnerships between UK and EU universities will turn out, there could also be no more, or less funding through Erasmus grants.


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