Is College Debt Bad? 5 Experts Weigh In

Taking on student debt has consequences that could linger for decades, making it imperative that prospective students have all the facts when considering a student loan.

Student loan debt has ballooned to nearly $1.63 trillion in the U.S. That figure is spread across 43.5 million Americans for an average of $37,574 per borrower, according to a BestColleges analysis of student debt.

Those figures, not surprisingly, have caused concern among many prospective college students. A recent survey from EAB found that college affordability is the top consideration in whether and where students apply and enroll. Thirty-six percent say they picked their institution for its “affordable tuition.”

Affordability and the rising cost of tuition go hand in hand.

A BestColleges survey of 1,000 students found that less than half (47%) believe college is worth the overall cost. Meanwhile, a quarter (25%) believe it’s not worth the cost, while 29% are unsure.

College debt may help make the unaffordable more manageable, but the long-term consequences may lead to more questions than answers.

BestColleges connected with five experts in the student loan and college affordability space to learn more about student loans, how much debt is excessive, and whether students should take out student loans to begin with. Here’s what they want students to know.

Before we can answer the question of whether student debt is bad, it’s first important to make the distinction between good and bad loans.

Unfortunately, Barkley-Denney says there’s no one-size-fits-all way to spot a “bad” student loan offer among the many available. She does, however, suggest federal student loans as a first option, since they tend to offer the best terms and lowest interest rates.

That’s not always an option for prospective students, which is when it becomes important to understand red flags in private loans.

“It’s true almost across the board that the most vulnerable people are the ones that fall for the worst types of products because it’s what they are offered, and sometimes the only thing available to them,” she said.

Barkley-Denney said one such warning sign would be in a pre-payment penalty. This refers to loans that don’t allow a borrower to make advanced payments on a loan to get out from under the debt sooner. Instead, these private or institutional loans aim to keep borrowers on the hook for as long as possible to keep them making interest payments.

This is a particular concern among income share agreements (ISAs), she said.

ISAs aren’t technically a loan, but many experts and student advocates have lobbied the Consumer Financial Protection Bureau (CFPB) to reclassify them as such. Without that classification, they do not fall under the Truth in Lending Act’s purview, which is why she recommends students stay away from ISAs.

Potential borrowers should also be wary of loans that come directly from institutions, Barkley-Denney said.

In the world of loans, federal student loans offer some of the most manageable debt compared to debt like mortgages.

Desjean added that federal student loans also offer some of the best protections for borrowers.

“Federal loans offer much better borrower protections than private loans, for the most part.”

Firstly, these loans are manageable from an application process. Unlike other loans, the federal government does not check credit history when offering these loans. That means people with no or poor credit history can still use these loans to fund their education, unless applying for a Parent PLUS loan.

There are, however, limits on how much undergraduate students can borrow each semester. While that amount is generally enough to afford the tuition of a community college, she said, it’s unlikely students can sustain themselves solely on these loans if they attend a four-year institution.

Additionally, Desjean said federal student debt offers flexible repayment options. Income-driven repayment (IDR) plans create lower monthly payments based on discretionary income. And they offer complete forgiveness after 20-25 years of consistent repayment. Forbearance options add further flexibility, allowing borrowers to suspend payments for up to a year at a time.

There are also circumstances where the Department of Education (ED) may discharge federal debt. Some of those situations include:

These options aren’t generally available for private loans or any other types of non-student debt.

President Joe Biden proposed a plan to erase up to $20,000 in federal student loan debt for most borrowers, but the U.S. Supreme Court struck down that plan in a 6-3 decision on June 30, 2023. Biden is currently working to erase debt through negotiated rulemaking, but that will be a lengthy process.

One of the central problems in addressing the question “Are student loans bad?” is coming up with an alternative.

Currently, there simply isn’t another viable option for many low- and middle-income prospective students, Martinez said. This is doubly true for historically excluded groups like Latinos and Black students.

The federal government stopped investing heavily in higher education around 2008, she said. Instead, it opted to increase its lending to those attending school.

The Pell Grant, which is the most popular way low- and middle-income households afford postsecondary education, fell by the wayside. As a result, its purchasing power has greatly diminished. The maximum Pell Grant covered nearly 80% of the cost of a four-year college degree in the early 1970s, but ED now estimates it covers less than 30% of that cost.

Students need to cover the remaining 70%, on average, somehow. And student loans are the easiest way to do so, Martinez said.

It’s less feasible than ever to work your way through school without years of saving. Government data shows that median household income has not increased to match tuition price hikes since 1990.

Plus, Martinez said, students who work part time during college are less likely to finish within four years, which means added costs if they fall behind schedule.

“It’s definitely a vicious cycle,” she said.

When adjusted for inflation, college tuition and fees have more than doubled at four-year institutions over the past three decades, according to National Center for Education Statistics data.

As a result, taking on debt has become an inevitable part of attending college, Hornsby said. However, that shouldn’t be the case. He said if the student loan debt crisis is ever to be addressed, Congress must regulate how much schools – particularly public institutions — can charge per semester.

“You need to care about costs at some point,” he said.

Payment options, seen as a blessing to many, are likely contributing to this problem, Hornsby added.

Students may be increasingly using the option of IDR as an excuse to take on mountains of debt. If forgiveness is not taxed then there would be no difference between borrowing $250,000 for school and borrowing $700,000. Therefore, students are more likely to attend the more expensive school, and colleges are incentivized to keep prices high.

If students want to avoid default, the best thing they can do is calculate how much debt they can afford to take on before they even start college.

Kantrowitz said a rule of thumb he advises prospective students to use is that if their cumulative student debt is equal to or less than their starting salary for their field, they should be able to pay off that debt relatively easily. The mean student debt is about $37,000 per student.

However, starting salaries vary wildly depending on the field. Kantrowitz recommends using data from the Bureau of Labor Statistics to “ballpark” how much a student might make out of college in their desired job. For starting salaries, he recommends using the 10th percentile salary as a predictor.

Additionally, students should use ED’s net price calculator to determine how much they’ll likely need to take out in loans to afford their school of choice.

Using those figures, he said, students can lay out a path where they don’t borrow more money than they can afford to pay back, he said.

“Debt is largely unavoidable for a bachelor’s degree,” he said. “It’s really not about how to graduate with no debt, but how to graduate with as little debt as possible.”

This method can sometimes feel disappointing for students, he added. Some realize they need to attend a cheaper university than their “dream” school or realize their desired field doesn’t pay much after graduation.

However, he said it’s good to know this information on the front end, rather than after graduating and it’s too late.