If you’re thinking about going to college, you’ll likely need to take out student loans to pay for at least some of your expenses. According to The Institute for College Access and Success (TICAS), 62% of graduates used student loans to pay for a portion of their college costs, with an average student debt balance of $28,950 in 2019. While student loans are common, they can be a significant burden. So are student loans worth it? Unfortunately, there isn’t one simple answer that applies to everyone. Here’s what to consider before taking out student loan debt.
Are student loans worth it? 5 factors to consider
Is it worth getting a student loan if it means you get a degree? To decide whether or not it makes sense to use debt to pay for your education, evaluate the following factors:
1. The cost of your college
College costs can vary widely by institution, location and type of school. For example, The College Board reported that the average tuition for a public four-year school is $10,560 for in-state students. By contrast, a private non-profit college will cost $37,650 — a 256% percent difference. However, the sticker price of your tuition and fees is only part of the whole picture. While private schools are more expensive than public universities, they often offer more substantial scholarships. In some cases, attending a private school will allow you to rely less on student loans than attending a public university. When evaluating which school to attend and how much to take out in student loans, consider the college’s net price — the cost of the school after subtracting gift aid like scholarships and grants.
2. Length of program
Depending on the university and major you choose, you may have to spend more time in school, adding to your education costs. The National Center for Education Statistics reported that just 44% of students complete their bachelor’s degrees in four years. Many college students spend five to seven years in school. If your program will likely take longer than four years to complete, make sure you consider the additional costs. Not only will you have to pay tuition and fees, but you’ll also have to cover room and board, textbooks and transportation. Each additional year means you’ll have to spend more money — and potentially apply for more loans. Before choosing a school, use the College Scorecard — a tool offered by the U.S. Department of Education — to look up how long the typical student takes to complete their degrees at your selected colleges.
3. Employability rates
While college is expensive, most employers today expect applicants to have degrees. A 2018 study by Georgetown University’s Center on Education and the Workforce found that two-third of job listings require at least some college education. The ability to more easily secure a job makes student loans worth it in some cases. If you can get a job after graduation without taking on a larger amount of debt than you can afford, you can pay down your loan balance relatively quickly and enjoy a higher earning potential over your lifetime.
4. Average salaries after graduation
Looking at what wage you can expect after you leave school will help you figure out if you can afford your loan payments. High starting salaries after graduation make student loans worth it — within reason. In general, people with bachelor’s degrees earn far more than people who don’t go to college. In fact, the median salary for college graduates is 67% higher than the median salary for people who didn’t attend college. According to US News, the highest-paying jobs for college degrees include actuaries, engineers, and computer programming, but many different career paths can be worthwhile. To find out about how much you can expect to earn once you start working, use PayScale. Input your location, education, and work experience (if any), and it will tell you the average starting salary for your field. With that information, you can estimate how much money you can afford to borrow with the Mapping Your Future Debt Wizard. Enter your expected starting salary after graduation, and the calculator will approximate the maximum amount of student loan debt you can afford. Keep in mind, these programs can only provide general estimates – you should speak with a financial advisor if you want to make a plan that’s specific to your personal situation.
5. Interest rates on your loans
Before applying for student loans, carefully review the loan’s terms and rates. Interest rates can vary widely, especially with private lenders. Are private student loans worth it? It really depends on the lender. According to TICAS, private student loans can have variable rates as high as 14%. But if you shop around and have good credit or a co-signer, you might qualify for much lower rates. It’s important to work with a reputable lender if you’re considering private student loans – and ELFI has the highest TrustPilot rating among major student loan refinancing lenders.1 You can use ELFI’s private student loan payment calculator to see how much your payments could be with different interest rates and repayment terms.*
Paying for school
It’s a common question: are student loans worth it? While there isn’t one right answer that applies to everyone, using student loans to pay for school can be worthwhile if it leads to a good job that pays well. As a first step, take some time to learn how student loans work and explore alternative options. To ensure you get the most value from your degree and minimize debt, make sure you maximize other forms of financial aid before turning to student loans. Complete the FAFSA to qualify for need-based grants, and use resources like FastWeb and Niche to find scholarships that may reduce your educational costs. After using up your gift aid options, shop around for the best student loans. With ELFI’s Find My Rate tool, you can get rate quotes for private student loans without affecting your credit score.*
1As of 3/17/21, Education Loan Finance has the best TrustPilot TrustScore® (4.9 out of 5) among major student loan refinancing lenders.
