Are Loans Really That Bad? The Pros and Cons of Student Loans
BestColleges.com is committed to delivering content that is objective and actionable. To that end, we have built a network of industry professionals across higher education to review our content and ensure we are providing the most helpful information to our readers.
Drawing on their firsthand industry expertise, our Integrity Network members serve as an additional step in our editing process, helping us confirm our content is accurate and up to date. These contributors:
- Suggest changes to inaccurate or misleading information.
- Provide specific, corrective feedback.
- Identify critical information that writers may have missed.
Integrity Network members typically work full time in their industry profession and review content for BestColleges.com as a side project. All Integrity Network members are paid members of the Red Ventures Education Integrity Network.
- College is expensive, but student loans can expand access to higher education.
- Before taking on a loan, students should make sure it’s a sound financial decision.
- Scholarships, grants, and other financial aid can reduce a student’s financial burden.
- Federal loans offer lower, fixed interest rates with relatively flexible payment options.
College is expensive. When combining tuition, fees, books, and housing, students can easily pay tens of thousands of dollars each year to fund their education. As a result, 65% of students graduate with student debt.
Skeptics of student loans question the value of taking on debt to fund a college degree. But the reality is that many individuals rely on loans to pay for school.
We take a look at the pros and cons of student loans, offer some tips to offset the need for loans, and clear up some common questions students have. Learn more about college loans and how they can expand your access to higher education.
Are Student Loans a Good Idea? A Bad Idea?
Until tuition rates fall and financial aid opportunities dramatically expand, student loans will remain a reality — for better or worse.
Some individuals may question the value of incurring debt for higher education. However, there’s no clearer path toward expanded career options and earning potential than a college degree.
As tuition rates rise, student loans dramatically expand higher education access to those who may not be able to afford it otherwise. So borrowing responsibly is vital.
Skeptics see loans as financially risky. But when combined with various financial aid options like scholarships and work-study programs, a loan can be an investment in your future.
Are Certain Student Loans Better Than Others?
When considering loan options to pay for school, the first place to start is federal loans.
The interest rates on federal loans are fixed and relatively low. But because federal loans do not exceed $12,500 per year for undergraduates, degree-seekers may need to find other loan options.
If a federal loan doesn’t meet all of a recipient’s financial needs, private loans are a common option.
Unlike federal loans and their relatively generous repayment options, private loans may not offer repayment plans that consider income or financial hardship.
The Biggest Pros and Cons of Student Loans
Just because the majority of students take on debt during college doesn’t mean that it’s the best financial decision for everyone. Before taking on the serious responsibility of student loans, assess your financial situation and consider the pros and cons of student loans.
Pros of Student Loans
- Help You Afford Your Education: For many students, loans allow them to attend college and expand the list of prospective schools that they otherwise couldn’t afford. Taking on debt is a serious decision, but earning a college degree can offer a path to expanded career options and earning potential.
- Allow You to Pay for College Over Time: While accruing debt during college may feel daunting, students often repay these loans over long periods of time. Additionally, with most federal student loan programs, college grads can pay off their loans in amounts that correspond with their income.
- Lower Interest Rates Compared to Traditional Loans: Compared to other loans, student loans typically boast lower interest rates. Interest rates for personal loans, car loans, and credit cards all typically exceed the standard rates for student loans.
Cons of Student Loans
- You’ll Likely End Up Paying More in the Long Run: As is the nature of loans, students taking on debt pay interest on the sum they’ve received. Over the course of a standard 10-year student loan, they can pay thousands of dollars more in interest.
- Debt Can Lead to Long-Lasting Financial Hardship: Weighing the financial burden of student loans is an important consideration. For some graduates, the required monthly payments present a difficult long-term financial situation.
- They May Not Cover All Your Costs:College is expensive, and tuition fees only make up a portion of the total cost of higher education. The true cost of college includes housing, food, travel, and more.
Should You Borrow With Student Loans?
The decision to take on debt to pay for college is a personal one. It relies on careful consideration of various factors. And while earning a college degree is a traditional path many people take before beginning a career, students should consider some essential factors before taking on a loan.
Students should assess their financial need, the total cost of attendance, post-graduation career prospects, and earning potential. Reaching out to your school’s financial aid office can also help when exploring various financial aid opportunities and ways to cut costs.
4 Tips to Avoid Student Loans
Even though most students graduate with debt, there are ways to reduce or eliminate the need for loans. Here are some common ways students can cut costs and secure funding.
1. Apply for Scholarships and Grants
While loans are a common financial option for many students, scholarships and grants can dramatically reduce the financial burden of tuition and associated fees.
As opposed to student loans that can result in decades-long repayment plans, scholarships and grants traditionally act as free money with minimal strings attached. They typically don’t need to be repaid as long as you meet certain requirements.
Scholarships and grants come from various public and private sources and often prioritize top-performing students or those who demonstrate financial need.
2. Attend a Less Expensive College or University
When choosing a college or university, financial concerns often play a significant role in whether or not a student enrolls.
For those concerned about post-college loan repayments, selecting an institution that offers quality academics at a manageable cost could be the practical choice. That said, sometimes tuition rates fail to tell the whole financial story. Many schools offer generous financial aid packages.
3. Use a Tuition Payment Plan
Rather than paying in one lump sum, tuition payment plans spread tuition fees into installments — traditionally over the course of a year.
Depending on a student’s specific financial situation, a tuition payment plan can reduce or remove the need for loans. Reach out to your school’s financial aid office to find out about their policies involving tuition payment plans.
4. Graduate On Time or Early
While graduating on time or early may not prevent the need for student loans, finishing your degree in a timely fashion may dramatically reduce the amount of money borrowed.
In short, more time in school can mean more loans. To graduate early, students often earn college credit in high school, take summer and/or winter courses, and maintain a full academic schedule.
Frequently Asked Questions About Student Loans
The primary distinguishing factor between financial aid and student loans is whether or not the student needs to repay money received.
With financial aid such as scholarships and grants, recipients traditionally do not need to repay the funds received. Conversely, student loans require recipients to repay the money, with interest.
Considering that the majority of students graduate with student loan debt, financial aid opportunities like scholarships and grants can play a significant role in reducing the amount of debt that recipients must repay. Scholarships and grants come from various public and private sources — with sums both small and large.
In simple terms, interest refers to the fees that accompany a loan. When making monthly payments on a loan, the borrower’s payment covers two areas: interest and principal. The principal is the amount of money borrowed, while interest is determined by an annual percentage rate (APR).
When considering student loan options, borrowers should take into account various essential factors. These include loan interest rates, loan eligibility requirements, and the reputation of lenders. Additionally, students should consider repayment plans and make an honest assessment about their earning potential upon graduation.
Feature Image: DjelicS / E+ / Getty Images
Explore More College Resources
A Complete Guide to Private Student Loans
Should you use private student loans to help pay for college? Learn how private student loans work, how to apply, and about the possible risks.
Updated March 25, 2023
The Student’s Guide to College Loans
Many students take out loans to help pay for college. This in-depth guide looks at the best student loans you can get and how to apply for them.
Updated May 24, 2023