Total student debt now accounts for US$1.5 trillion. With college tuition only going skywards and more of America’s young adults going to college, the figure is only set to increase. Some students now graduate from educational institutions with more than US$100,000 in debt. But is it worth it?
These eye-watering sums are causing many prospective college students to pause for thought and consider whether taking on a student loan to pay for their studies is really a worthwhile undertaking.
Here we break down a number of factors that should influence your decision on whether or not to take out a student loan and help decide if borrowing for the costs of your education is the right financial path for you.
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Will They Be a Barrier to Entry?
The first thing to consider is whether or not avoiding taking on a student loan would be a barrier to entry. If you cannot attend the college or university without borrowing, then loaning the necessary funds is likely to be the best investment in your future.
A national poll found that 61% of students agreed that taking out student loans was worth undertaking in order to attend college. Only 16% of participants said taking out a loan was definitely not worth it. Generation Z was also more likely to say the debts were worth it than Millennials.
These statistics alone suggest that if you take on student loans in order to pay for college, you are more likely to appreciate your decision than regret it down the road.
I Have the Money Saved, Should I Use it?
If you already have the amount required for college tuition saved, and not taking on a student loan won’t be a barrier to entering the college of your choice, should you take out a student loan?
The answer to this question varies from situation to situation and will depend largely on exactly how much you have saved. However, it is possible to draw some general conclusions.
Firstly, the type of loan should have a significant impact on the choice you make. If you qualify for federal student loans, which offer flexible repayment plans, deferment options, forgiveness plans, and competitive interest rates then they may be undertaking. Loans from private institutions, which are far more rigid and less forgiving, may not be something you want to tie yourself into.
The amount you have saved will also play a factor. If paying for your college tuition yourself and not relying on loans would take up a large portion of your savings, a loan may be a better option. When you graduate from college, you may need to rely on these savings while you look for a job, relocate, and organize new living arrangements.
Only if you have sufficient savings to cover tuition while maintaining a small emergency fund to cover expenses following graduation should you consider paying for your college education without the assistance of a federal student loan.
If this does not describe your current financial situation, a small, federal student loan for the amount you need is probably the right decision.
Are considering a student loan?