By: Rita Cunha | November 13, 2020
A college education can help get you on a great career path. The more skills and knowledge you acquire, the better your chances are of faring well financially—at least in theory. In practice, millions of college graduates struggle with student loans every month. It has gotten to a point that the student loan debt seems impossible to pay off completely.
Thus, it’s no wonder that prospective college students ask themselves “Are student loans worth it?” Is getting a college degree really all that it’s cracked up to be? Or could it potentially harm your future? Today, we’re answering all those questions as we go into the nitty-gritty of personal finance, higher education, and student loans.
How Bad Is the Student Loan Crisis?
If you’ve never been under the crushing weight of student loans, calling it a crisis may seem like an overstatement. It isn’t. Americans collectively owe a whopping $1.56 trillion in college debt. And that number just seems to keep rising.
Millennials, in particular, are burdened by the costs of higher education. When you have student loans to cover, how can you put enough aside for savings? Let alone buy a house, start a family, or build a business from the ground up? These are real worries.
Most Students Graduate in Debt
70% of recent graduates leave school with at least some student loan debt. According to the College Board, students in the class of 2018/2019 took out an average of $28,800 in student loans. That number is even higher for grad students.
When you look at things this way, it’s easy to see that college is an enormous financial investment. Borrowers need to take out federal or private student loans, and sometimes both.
The Student Loan Debt Keeps Rising
Unfortunately, student loan debt isn’t shrinking fast enough. What at first seems like “free money” can quickly snowball into a financial nightmare. Especially when it’s compounded with debt on credit cards and entering the workforce on a low starting salary.
We are not bringing all this up to discourage you. Instead, we want to emphasize just how pressing the student loan crisis is. Before we can discuss if taking out loans to study is a good idea, we have to understand the full scope of the problem. So bear with me.
How Much Does a College Degree Cost?
On average, it costs $26,820 to get a bachelor’s degree from an in-state four-year public college. When we’re talking about four-year private colleges, the cost can jump up to around $54,880. Those numbers include tuition, room and board, textbooks and supplies, and other expenses.
What Are the Monthly Payments?
Every student loan has a minimum monthly payment. That means borrowers have to pay at least that amount to avoid defaulting on their loans. The median monthly payment is currently $222, according to the Federal Reserve. Of course, that amount depends on a lot of things, from loan terms to interest rates and loan balance.
How Long Does It Take to Pay It All Back?
It can take borrowers anywhere from ten to thirty years to pay off student loans. Everyone’s repayment plan is different and it depends on how much you borrowed, what your interest rate is, how much your monthly payments are, and so on. Some people may take less or more time through loan consolidation and refinancing. But all in all, paying it all back will take a while.
Is Getting a College Degree a Good Investment?
Now we get to the burning question: knowing how expensive a bachelor’s degree is, is it still worth it? In our opinion, that’s a resounding yes—but only if you graduate and get a handle on your personal finances.
The Bureau of Labor Statistics confirms common knowledge. It states that whereas workers with high school diplomas can make $746 per week, those with a bachelor’s degree can make $1,248.
On top of all that, it’s becoming increasingly hard to find jobs if you don’t have a college degree. Not to mention that rising in a career path is often tied to higher education.
So here’s a piece of insight: although your college degree may not prepare you to get a better job, it will certainly help you find a job. That’s because companies are shutting their doors to high school graduates more and more often. So even if you’re not applying what you learned in your degree to your job every day, that piece of paper might have been a big helper in getting you in.
Some degrees will put you in a position where you can make a lot of money from the start. Computer science, pharmacy, petroleum engineering, and dentistry are among the most high-paying majors in the United States. And if you go to graduate school to keep learning about these areas, your prospects are even better.
Of course, all these degrees will likely put you in a fair amount of college debt. But paying your student loan debt off will be relatively smooth once you join the workforce.
Federal Loans vs. Private Loans (Not All the Same!)
There are two types of loans: federal student loans and private student loans. The federal ones are the most sought after because they have a better interest rate and better terms.
However, for some students, federal loans can’t cover their full college education. That’s when they turn to private loans. Typically, private loans have a higher interest rate and will require a cosigner. To get the best terms, your cosigner should have a stellar credit card score.
Should You Save for College or Take Out Student Loans?
If you can, save instead of taking out student loans. Obviously, this is easier said than done. After all, most college students take loans because they don’t have enough savings to afford their degree. But whatever money you can scrounge up will be better than getting a loan.
How to Afford a Degree Without Incurring Massive Debt
We’ve seen that education does bring a lot of value. For starters, it means much better wages and better chances of getting into a meaningful career path. But you don’t have to fall into a pit of debt to afford a college education.
There are a lot of things you can do to lessen the amount you’ll need to take out in loans. The less you borrow, the less burdensome the repayment plans will be , and the closer you’ll be to a worry-free financial situation once you graduate.
1. Research and Apply for Scholarships and Grants
First, research and apply for all the scholarships and grants you can find. Many students forget that they can get “free money” to study. There is student aid for all kinds of situations, from academic merit to playing sports and so on. It’s always worth looking into what’s available in your state.
If the search is proving overwhelming, don’t hesitate to talk to your prospective university’s admission’s office. They can guide you in how to find these much-needed financial aid opportunities.
What’s key is that you do your research before the deadlines. Make sure to fill out your FAFSA as soon as possible!
2. Enroll in a More Affordable School
Nothing will save you from massive student loans more than finding a school you can afford. If you’re determined to get a bachelor’s degree, look at a four-year college that doesn’t charge outrageous tuition and fees. Besides, what’s more expensive isn’t always better.
Remember, staying in-state is typically much, much cheaper, too. It might be tempting to leave your state behind and move, but this is not always a financially sound decision. Especially if you don’t qualify for grants and scholarships.
3. Consider Transferring Credits
Another affordable option is getting your associate degree at a community college and then transferring. Many (if not most) four-year colleges will accept credits from other schools. By choosing this route, you can save yourself a lot of money. Especially if the community college you choose is near your home, meaning you could save on living expenses.
4. Pick a Degree You Know You’ll Love—and Stick to It
According to the Department of Education, 30% of students change their major. While that may not seem like a lot, changing majors often means taking out more loans. After all, you’re staying in school for at least an extra year.
Choosing a degree you’re passionate about and know you’ll stick to is a good financial idea. You would (only) have to pay four years of tuition and living expenses. If that means taking a year off before going to college to figure out what you want to learn, so be it. Gap years can be very useful—especially for the tip we’re about to give you next.
5. Work Before and During Your Degree
If you have some money in the bank, you can delay tapping into student aid. Thus, you’d have to pay less money back, which will put you in a better financial position once lenders come calling.
Practically all personal finance experts will recommend you get a part-time job to afford university. Working during your high school years and then during your college stay will be a great help. Plus, your college may even have work-study programs that will help you cut back (or even eliminate!) tuition costs.
You could also get a side hustle that pays you without taking up too much time out of your busy day. Swagbucks could be a good place to start because you only need a smartphone or a computer.
6. Live a More Frugal Life
Lastly, keeping your living expenses down will also help you avoid massive amounts of debt. Don’t look at student loan money as “free money.” You will have to pay it all back—and then some in interest.
Remember, you never have to accept the full amount lenders offer you in student loans. Gauge how much you’ll really need—and stick to it.
Learn how to cook affordable meals, cut back on frivolous expenses, and don’t blow money mindlessly. You can also scout your future college town for free things you can do to have fun. From joining a society to attending events hosted by your school, there will be plenty to keep you entertained.
Is It Better to Pay Off Student Loans or Save?
College graduates often wonder if it’s better to build a savings account or to pay off all student loans quickly. Unfortunately, there isn’t a straightforward answer. It all depends on your financial situation. But here is what we recommend in most cases:
- Use your grace period to your best advantage. Most lenders don’t ask you to start your repayment plan for months after you leave school. So start saving during this time and keep doing it.
- Then, make your minimum monthly payments without paying a cent more.
- Look to see if you qualify for a loan forgiveness program. Employees in public service and non-profit organizations may be free from student loan debt in just 10 years after consistent payments.
- Even if you don’t qualify, now is the time to put money into retirement funds (yes, really). Especially if your company will match your contributions.
The only exception to all that is if you have student loans with an interest rate of 7% or higher. In that case, start paying those off, starting with the ones with the highest interest rate. When you get to the loans with lower interest rates, work on building a savings account.
How Much Should I Save?
If you’ve decided to save, you may be wondering how much you should put aside. As a rule of thumb, aim to have 12-months-worth of expenses in the bank. This amount will vary depending on where you live. If you’re based in a small town in Iowa, you will have to put away less money than if you were based in New York City.
Only tap into this savings fund in emergencies. Losing your job or needing costly medical assistance would be the prime candidates to spend the rainy-day fund on.
Final Words: Are Student Loans Worth It?
Simple answer: It depends! Student loans can be incredibly helpful if you graduate and keep on top of your finances. You’ll have to take a hard look at your life to decide if it’s worth dealing with hefty student loan payments in the future. What kind of job do you want to get? Where do you want to be in ten years? And what ways do you have of getting there?
You could swear off college and head to a trade school or start a business from the ground up. There are so many options and only you can decide what’s ultimately better for you.
Whatever you choose, just remember you don’t have to be locked to your lender forever. There are ways of paying off student loan debt, even if the debt load seems astronomical. Don’t despair.
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