So you’re heading off to college soon and wondering how to pay for it all. Taking out student loans may seem like an easy option to cover the costs, but is it truly wise in the long run? This important decision requires careful thought and consideration of all the factors at play. In this comprehensive guide, we’ll explore the key pros and cons of student loans to help you determine if they are the right choice for funding your education.
The Rising Costs of Higher Education
Over the past few decades, the total cost of attending both public and private universities in the U.S. has increased significantly. According to the College Board, the average published tuition and fees at public four-year institutions rose a whopping 213% from the 1987-1988 school year to 2017-2018. Private nonprofit four-year colleges saw an increase of 129% during the same time period.
This doesn’t even include additional expenses like room and board, books, transportation, and personal costs. When you factor everything in, the total average cost of one year at a public university now tops $25,000 for in-state students and over $41,000 for private nonprofit institutions. Ouch!
These constantly rising costs make paying for a bachelor’s or advanced degree feel like an impossible feat for many students and families. Turning to student loans seems like the only viable path forward. But are the long-term costs truly worth it?
The Benefits of Student Loans
While they do come with their downsides, student loans offer some compelling advantages that have made them an increasingly popular funding choice:
Access to Higher Education
The number one benefit of student loans is that they expand access to higher education, especially for lower-income students. Without the ability to borrow, many qualified students would not be able to enroll in college at all due to lack of financial resources. Loans help knock down barriers and make degree programs affordable.
Flexible Repayment Options
Federal student loans, in particular, provide borrowers with flexible repayment plans like income-driven repayment to help manage costs post-graduation. Your monthly payments can be adjusted based on your salary and tied to what you can realistically afford.
Building Your Credit History
If you make on-time student loan payments each month, this responsibility can help build your credit score and demonstrate you’re able to manage debt wisely. A healthy credit profile makes it easier to qualify for other loans, such as a mortgage, down the road.
Higher Earning Potential
On average, college graduates earn substantially more over the course of their careers compared to those with only a high school diploma. So even with student debt, you’re still likely to come out ahead in lifetime earnings. The increased success and opportunities a degree provides may make the loans a worthy investment.
The Potential Downsides of Student Loans
However, it’s not all sunshine and roses when it comes to borrowing for college. There are considerable disadvantages to student loans that must be carefully weighed:
Burdensome Debt
The sheer amount of debt students take on today can be overwhelming. The average 2019 graduate left school with over $29,000 in loans. That monthly payment is no small chunk of change, especially when you’re just starting out in your career.
Interest Rate Risk
Most federal student loans have fixed interest rates, but private bank loans usually have variable rates. This subjects you to interest rate risk where your rate could spike at any time, significantly increasing costs.
Long Repayment Period
Because balances are so high, loan repayment can take 10, 15, or even 30 years depending on the type of loan and plan. You’re stuck paying off education costs well into adulthood—not the most exciting prospect.
Lifestyle Restrictions
Each student loan payment takes away money that could be used for other goals like traveling, getting married, buying a home, or starting a family. Loans can really restrict your lifestyle, at least temporarily.
Difficulty Discharging in Bankruptcy
Finally, it’s nearly impossible to discharge student loans even in bankruptcy. This debt will stick with you no matter what, short of full repayment.
Alternatives to Reduce Reliance on Loans
The high costs of an education these days likely means most students will need to borrow at least a small amount. But before taking out hefty loans, be sure to explore alternatives that can reduce (or potentially eliminate) the amount you need to borrow:
Scholarships: Apply for every scholarship you can, whether through your school, local organizations, companies, etc. Even small ones add up.
Grants: Federal and state grants help cover tuition costs and don’t need to be repaid, unlike loans. Submit your FAFSA early for consideration.
Work-study programs: These provide part-time employment directly through your school to earn money for tuition and expenses. Gain experience too!
Community college: Complete your first two years at an affordable local community college, then transfer to a four-year university.
Accelerated programs: Finish faster by taking summer classes, heavier course loads, or enrolling in accelerated degree programs. The less time in school, the less you'll need to borrow.
Key Personal Factors to Consider
As you weigh the pros and cons of taking out student loans, also reflect carefully on your own personal situation and goals. Important things to consider include:
Your comfort level with debt and risk tolerance. Are you willing to take on high loan balances?
Your expected future salary and career prospects after graduating. Will you earn enough to comfortably repay the loans?
Your other financial priorities like saving for retirement, buying a house, starting a family, etc. How will loans impact these big goals?
Your mental health and stress management abilities. Can you handle the pressure of debt hanging over you?
Carefully assessing factors like these can provide great insight into whether taking on student loans aligns with your finances, priorities, and personality. This will lead to a much wiser borrowing decision.
Conclusion: A Personal Decision Requiring Thoughtful Evaluation
Ultimately, deciding whether student loans are right for you comes down to carefully analyzing your specific situation, while weighing the sizable pros against the considerable cons. It’s crucial to evaluate all options for minimizing reliance on loans and determine what debt load you can reasonably manage.
For many students, judicious borrowing does expand access to academic opportunities and career advancement that make loans worthwhile. But for others, the long-term lifestyle constraints are too great a burden. Figuring out where you stand requires thorough research and self-reflection. While not an easy call, being intentional now can prevent tremendous regret down the road.