Are student loans worth it?

Taking out money to pay for college isn’t the easiest decision to make, especially if you’re worried about eventually paying it back. With the U.S. now in a recession, you may not know what the future holds when it comes to your education or your career.

Are student loans worth it? Regardless of where you are in your borrowing journey, here’s how to determine if taking out student loans is the right choice for you.

Questions to ask yourself before borrowing

Borrowing money for school isn’t a quick decision. Before you take out loans, ask yourself a few questions first.

What’s my ROI on my preferred major?

Your designated career path starts with your major. Some jobs don’t pay as well as others, which means that if you pick one that doesn’t have a high income attached, you may spend a long time paying off your loans or struggling to pay them back at all.

If you’re unsure about the return on investment of your potential career, check out what your job could pay through the Bureau of Labor Statistics. You can also compare on and Glassdoor. If you’re torn between majors, checking out salaries might help you pick one.

How much should I borrow?

The amount you borrow in loans depends on how much you need. If you have scholarships and grants, you may not need to take out as much as you would if you didn’t have free money. If you didn’t receive scholarships and grants, you’ll need to borrow enough to cover all of the costs you can’t afford out of pocket.

To avoid borrowing — and then repaying — a lot of money, try applying for scholarships and grants. Also see if your family has any money saved up for your college education; the less you have to cover with student loans, the less you’ll have to pay in interest.

What’s my repayment plan?

Before you take on student loan debt, consider your future repayment plan. Federal student loans and many private student loans start repayment six months after you graduate or drop below half-time enrollment. This is helpful if you don’t land a job in your field straight out of college or if it takes you a while to come up with regular payments.

If you have federal student loans, you can follow the standard repayment plan, consolidate multiple loans into one, try an income-driven repayment plan or, depending on your career path, apply for Public Service Loan Forgiveness.

If you’ve exhausted all of your federal student loan options, you might want to look at private student loan rates. These types of loans don’t have the same repayment term options, but you may find a repayment term that better fits your budget. If you need to adjust your repayment plan, you may qualify for a loan refinance.

Additional factors to consider

The worth of student loans depends on many different factors, including where you go to school, how much you borrow and how you’ll be able to repay your loans. Be mindful of considerations like:

  • Loans aren’t free. It’s easy to think about using money now and not giving it back for years later. But even though you don’t have to pay back the entirety of your loan when you graduate, loans are still a monthly financial commitment. And the longer you take to pay them off, the more you’ll have to pay in interest.
  • Repayment isn’t quick. The standard repayment plan for federal student loans is 10 years, and income-driven repayment plans are 20 or 25 years. Even though monthly payments might be manageable based on your income, that’s a long time to be paying for a school you only attended for a few years.
  • Your college matters. Some schools carry prestige and weight, but that usually means that they come with a hefty price tag. Expensive colleges aren’t necessarily better because they’re pricey; you can attend community colleges or take online courses to save on the cost of college.
  • You’re not guaranteed anything. Whether it’s graduation or a high-paying job, nothing about your future is guaranteed. That means if you take out six-figure loans, you have to pay them back regardless of if you have a six-figure income.
  • Loans aren’t your only option. You don’t have to only take out student loans to pay for school. Utilize all of your free resources first, including scholarships, grants and any dedicated college savings. It’s also smart to use federal student loans before moving onto private student loans, as they come with more borrower protections.

The bottom line

Whether or not you should take out student loans depends mostly on your career path, financial situation and school. If you already have college costs covered through free money like scholarships and grants, you may not need to take out student loans. However, if you attend an expensive university or didn’t qualify for free money, student loans might be necessary.

Featured image by Rinafoto of Shutterstock.

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