Are Student Loans Worth It?

Point of Interest

Student loans can be worth the financial burden if you use the money to get educated and grow your opportunities for employment. If not, then you’ll be stuck with a pile of unwanted debt.

Student loans are a serious subject: Without them, many potential college students wouldn’t be able to afford the high cost of higher education, but these loans can become a major burden to pay off once you’ve graduated or left college or trade school. The high cost of college debt many people are dealing with begs the question of “are student loans worth it?”

As of 2019, over 43 million Americans were strapped with student loan debt. Each person with student loan debt carries, on average, about $35,000 worth of loans, a combined total of just over $1.5 trillion in federal student aid loans alone. And that’s just federal student loans — these numbers do not take into account the estimated $119 billion in private student loans that are not backed by the government.

The eye-popping average college debt figures continue to grow year after year as tuition rises and fees and other costs make college more expensive across the board. But despite such an onslaught of college debt, student loans are still a good fit for most people who are trying to fund their education thanks to the increased earning potential that comes with a degree or trade. Even the hefty cost of a graduate degree can be worth the debt in many cases thanks to certain loan forgiveness programs.

As it stands, college is still a worthwhile investment in most cases for those who graduate and build a career with the skills they learned in higher ed. For those who don’t, it’s an expensive burden to bear.

Why take out a student loan?

College is expensive. During 2019-2020 academic year, the average yearly price of tuition, fees, room, and board was $30,500 — but that’s a number that but can vary widely based on where you go to school, whether it’s a private or public institution, and many other factors. According to Educationdata.org, that amounts to a total average price of approximately $122,000 for a four-year degree.

And, considering that the average American is sitting with $35,000 in debt after school, it’s clear that many people are relying on loans or other financial aid to help supplement the high cost of college.

Nobody likes being in debt, but taking out student loans to cover what you can’t pay out-of-pocket is still a worthwhile investment in most cases. After all, students who graduate with a bachelor’s degree will earn twice as much as those who don’t on average. In the long run, this higher earning potential greatly outweighs the cost of a degree.

Degrees also tend to open up more job opportunities. This makes it easier for people to switch cities or careers — or both — as employers nationwide will see hiring you as an asset or value to the company. Overall, taking out a student loan to cover what you can’t pay for in full is a smart move.

Paying back student loans

People usually have a six-month grace period after college before they are required to start making student loan payments. However, you should be thinking about exactly what that means for you well before that. In fact, it would be wise to start paying off loans while you’re still in school — if it’s possible.

And while student loans may be beneficial to most people, it’s important to know what the interest rates and repayment terms are before taking on any student loan debt from either private student loans or federal loans. Many borrowers are offered the option for federal loans — which are loans backed by the federal government with lower interest rates and a wide range of terms. But while federal student loan rates are often low, that doesn’t necessarily mean that the government has the lowest rates.

Some of the best student loan rates are offered by private lenders. Some lenders can offer rates under 3% APR, while the government has a fixed interest rate for undergrads sitting at 4.53% APR for direct subsidized and unsubsidized undergraduate loans disbursed on or after July 1, 2019, and before July 1, 2020. The downside is that you’ll have to either have a cosigner or impeccable credit to be approved for a private student loan.

The interest rate and APR on a student loan are important because it’s how much more you’ll end up paying the lender for your loan on top of the principal amount you borrowed. In most cases you won’t have to start making payments on your loans until after you graduate, but if you start paying down your loans beforehand you can often cut down on the amount of interest you’ll pay after graduation.

This is because student loan interest is based on the total amount you owe, and throwing even $20 a month toward your loans while you’re in school is a way of lowering the principal amount you owe. Subsidized loans don’t accrue interest while you’re enrolled at least half-time in college; the interest is paid by the Education Department during that time. That means any money you pay toward a subsidized loan while in school will decrease the principal you owe and the total interest you’ll owe once you graduate.

This pay-early tactic becomes more important if you have unsubsidized loans since unsubsidized loans accrue interest while you’re still in school. If you can start paying that compounding interest down early you’ll owe less once you graduate.

On average, most people have a 10-year repayment plan because that’s the timeline for repayment under the Department of Education’s standard repayment plan. Still, this timeframe can fluctuate with your income and other factors, so it can take much longer to repay your loans in some cases. To get an idea of what a 10-year repayment plan looks like per month, let’s say you took out a $35,000 loan with an APR of 4.53%. You would need to pay $363 per month to pay off your debt in 10 years.

There are student loan forgiveness programs available in some cases that will either partially or completely wipe out your debt, including the Public Service Loan Forgiveness program, which is one of the more common options. As part of this program, you can get your loans forgiven if you make 120 payments while working a public service job for the government or qualifying non-profit.

If you don’t qualify under that program, there are several other loan forgiveness programs to look at aside from PSLF that cover different situations and career fields. If you think one fits your career path, consider it. It might be the best way to pay off your student loan debt.

Alternatives to student loans 

Scholarships

College students have access to thousands of scholarships that can seriously mitigate the cost of your education, and these scholarships come with a wide range of qualifying criteria and various amounts. There’s often a lot of hype around large scholarships, but don’t discredit smaller amounts. Every little bit of free money helps.

The first place students should look for scholarships is at their college of choice. Colleges have a lot of financial aid to give to students of all disciplines. It doesn’t matter if you’re a freshman or junior — you should still check with your school to see if they have scholarships you qualify for.

There are plenty of other outside scholarships to take advantage of as well. The US Department of Labor recommends using the CareerOneStop scholarship finding tool, but you can also search online to find scholarships available through nonprofits, businesses and other organizations.

There are several websites that can help you sift through scholarships, including:

Grants

Both grants and scholarships are lump sums of money for school that you don’t have to pay back. The difference is that scholarships are often based on merit or other qualifying factors, meaning you have to meet certain criteria before you can get them. Grants, on the other hand, are need-based, meaning they are based on your current financial situation.

The federal government is the most common source of grants. There are a few different types it offers, but all federal grants are assigned during the FAFSA process.

There are other grants out there, too. As with scholarships, a lot of grants are offered by schools. Individual states also have grants to distribute. Most states keep this information on the main .gov websites, and many of these grants are easy to find with a simple internet search.

Work-study

Many students opt for work-study. This is a federal program that offers students part-time jobs to help cover some of the costs of education. Students are paid by the hour and are offered a specific number of hours of work that is done on campus. You can’t work more than the number of hours you’re allocated, though, which is a major downside if you have a lot of expenses.

Applying for work-study starts through the FAFSA application but is completed by your school. You can either get paid directly into your bank account or use it for school charges.

Are student loans worth it? 

Student loans can be the only option for obtaining a higher education in many cases. While borrowing money for school isn’t ideal (nobody wants to be stuck with $35,000 worth of debt), the longterm benefits of taking out a student loan are still often worth it for those who make the most out of their college experience.

If you’re using school to network, learn, grow and get on a career path, then taking out some student loans are a means to a good end. If you simply want to go to college to party — or if you drop out — then these loans will quickly become a financial burden.

Student loans have to be paid back, no matter how you choose to spend your educational career, so set yourself up in a position to succeed. If you do, you’ll likely find that the experience is very much worth the cost.

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