Are Student Loans Worth It? 6 Questions to Ask

 May 6, 2020
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There’s no easy answer to the question, “Are student loans worth it?” The answer is different for everyone, depending on factors like your financial situation and career goals.

But if concerns like, “Are student loans bad?” or “Is college worth the debt?” are swirling around in your head, there here are some better questions to ask in order to decide whether student loans are worth it for you:

1. Am I getting the best value from my college choice?
2. Does my ideal major have income potential?
3. Can I limit my debt by getting scholarships and grants?
4. What will my monthly payment be after I graduate?
5. Do I have a plan for paying off my college debt?
6. Will I graduate on time?

Still have more questions? Here’s where to look

1. Am I getting the best value from my college choice?

You may have heard sayings like “College is an investment in your future,” or “College debt is good debt.” But those things are only true if you choose a school that’s affordable for you, as well as one that’ll put you on track for a successful future.

There are many factors that will influence your college choice — including location, academic rigor and campus culture — but ideally, choose a school that gives you the most benefit for the least amount of debt. For instance, that could mean spending two years at a community college before transferring to a four-year university or attending an elite university on scholarship. (Generally, for-profit colleges aren’t a good value because they tend to be more expensive and lead to poorer outcomes.)

As you’re comparing schools — whether they’re public or private, in-state or out-of-state — use the Department of Education’s College Scorecard to weigh specific factors, including:

  • Graduation rate
  • Salary after completing
  • Average annual cost (after grants and scholarships)
  • Median total debt after graduation

2. Does my ideal major have income potential?

Your major plays a role in determining your future earning power. If your post-college income is high enough, you’ll be able to pay off your college debt and still come out ahead — or in other words, your student loans will be worth it.

Look up the average salary for your major using the National Association of Colleges and Employers’ Salary Survey, or use the Bureau of Labor Statistics’ Occupational Outlook Handbook to research the median pay for your ideal career.

Average starting salary for class of 2019 bachelor’s degree recipients by major:

  • Accounting: $57,511
  • Communications: $51,412
  • Computer science: $68,103
  • Liberal arts/general studies: $55,444
  • Mathematics/statistics: $62,823
  • Mechanical engineering: $70,329
  • Petroleum engineering: $84,160

Source: NACE Winter 2019 Salary Survey

Once you have a sense of your earning potential, limit your student loan borrowing accordingly in order to help ensure that you’ll be able to afford your future loan payments. As a rule of thumb, don’t borrow more than the amount you’ll earn in your first year after graduation. For example, if you’re pursuing a liberal arts degree, limit your college debt to about $55,000 for all four years of school. (This may not always be realistic, but it’s a good benchmark to aim for.)

3. Can I limit my debt by getting scholarships and grants?

Try to reduce your student loan burden by maximizing grants and scholarships, which you don’t need to pay back. To apply for federal grants and many college scholarships, fill out the Free Application for Federal Student Aid, known as the FAFSA. Additionally, use a scholarship search tool to identify ones you may qualify for.

As you’re comparing colleges, look for a school that will give you the lowest net price, or the amount you’ll have to pay after grants and scholarships. Sometimes, schools with high sticker prices — the price listed on the school’s website — can actually be more affordable than seemingly less-expensive colleges if they’re more generous with grants and scholarships. To estimate your net price at a particular college, use the school’s net price calculator.

4. What will my monthly payment be after I graduate?

When you take out student loans, it can be easy to ignore the reality that you’ll eventually have to repay them — with interest. Having an idea of the amount you’ll owe per month can help you determine whether student debt is worth it and prevent you from overborrowing.

Use a student loan payment calculator to estimate your future monthly payments. The payment amount will depend on your loan balance (the total amount you borrow), interest rates and the loan term (your repayment schedule).

For instance, if you took out $30,000 for your undergraduate degree (roughly the average student loan debt among the class of 2019), you’d owe $333 per month — assuming the average interest rate was 6% and you had a 10-year loan term (the default term fo all federal student loan borrowers).

5. Do I have a plan for paying off my college debt?

Before determining whether student loan debt is worth it for you, it’s helpful to understand your options for paying it off. Your repayment strategy will depend on the type of loans you have: Federal or private.

  • Federal student loans: Federal loans are eligible for income-driven repayment plans, which can reduce your monthly payments by capping them at a percentage of your income. Depending on your future employer(s), your federal student loans may also be eligible for Public Service Loan Forgiveness, or PSLF, which erases federal student loans after you make 120 qualifying monthly payments while working for the government or a 501(c)(3) nonprofit.
  • Private student loans: You should generally only take out private loans if you’ve hit the federal student loan borrowing limits and still need additional money to pay for college. (At that point, it may be time to evaluate whether that particular college is worth the debt). Private loans aren’t eligible for income-driven repayment plans or PSLF. Aside from simply paying them off, your only alternative repayment option is generally student loan refinancing, which could lower your interest rate and/or adjust your loan term.

6. Will I graduate on time?

If you take out student loans and then leave school before graduating, college isn’t worth it. About 36 million people in the U.S. are in this position, according to a 2019 report from the National Student Clearinghouse Research Center.

Regardless of whether you graduate, you have to pay back your college debt— this is one of the major dangers of student loans. Without a degree, your income probably won’t be as high as if you’d graduated, which means your monthly payments will likely be more difficult to afford.

It’s also important to graduate on time if possible. Among all students who started a bachelor’s degree for the first time in 2011, only 42% graduated in four years, according to the most recent data available from the National Center for Education Statistics. For every extra year it takes to finish your degree, you’ll have to pay tuition and fees, which likely means you’ll need more student loans.

Doing these things can help ensure an on-time graduation:

  • Choose a school with a good four-year graduation rate (the higher, the better).
  • Choose a school that’s affordable for you, so you don’t risk dropping out for financial reasons.
  • Meet with your academic advisor regularly to ensure that you’re on track with course credits.

Still have more questions? Here’s where to look

Student debt isn’t ideal. But if you account for the concerns in the six questions above, it’ll likely be worth it.

Then again, maybe after reading this post you still have concerns about student loans and your future. Maybe you need the answer to an entirely different question. If what you really want to know is whether college is worth the money, then check out our report on when a four-year college education is — and isn’t — a good idea. Or if it’s just about the value of a particular school, here’s some advice on how to decide.

Meanwhile, if it’s more about a certain kind of student loan is more worthwhile than others, have a look at our guide to federal vs. private student loans.

Elyssa Kirkham contributed to this report.

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