Should You Use Student Loans to Finish College Faster?

working or borrowing your way through college

Today’s college students have a harder time working their way through college than their parents probably did. And in some cases, relying on student loans might seem like the smarter move.

Recently, a Lifehacker commenter asked Student Loan Hero about the cost-benefit analysis of taking out student loans versus working and going to school simultaneously.

The commenter has a full-time job and is paying for college from these earnings, foregoing student debt altogether.

“My question is, should I take out loans to make things easier?” they asked, under the username RiffWizard. “Just wondering if I’m making things harder than I should.”

We thought the question deserved the following in-depth analysis.

How today’s college costs compare to minimum wage

Today, the high costs of college combined with stagnant wages makes working your way through college a bit less straightforward.

For the past 25 years, more than 70 percent of students have been earning a paycheck while attending school, according to a Georgetown University study released last year. Meanwhile, 25 percent of students have full-time jobs while enrolled in college full-time.

However, it’s essentially impossible for students to make enough money to keep up with college costs. Especially since they’ve risen steeply throughout the past few decades.

For example, if you are a full-time college student with a 17-week semester working 20 hours a week, you’d only make $2,465 a semester earning a federal minimum wage of $7.25 an hour.

Plus, that same college student would only make about $9,860 in gross wages working part-time for two college semesters and full-time over the summer.

Even before taxes, that’s barely enough to cover the average annual tuition of $9,650 at in-state public colleges in 2016, as reported by the College Board. And it doesn’t come close to the average cost of college attendance (tuition plus room and board) of $20,090.

Yet, 70 percent of student get grant aid, which can greatly help lessen their burden of college costs.

However, the average net tuition college students covered in 2016 was $3,770. Covering this annual costs would require 520 hours of work at a minimum-wage job. That would be approximately 13 weeks full-time, or 26 weeks part-time.

College students’ earning potential is much higher post-graduation

Overall, a college student’s earning potential will be much more limited before graduation than after.

Even working full-time, a minimum wage worker’s gross earnings will cap out at just over $15,000 a year. Although many college students might be able to earn more, a wage that’s twice the federal minimum wage will only gross $30,160 a year.

But, average starting salaries for college graduates in 2016 are estimated at about $52,570 by the National Association of College and Employers. That’s more than three-and-a-half times the annual earnings of a minimum-wage worker.

In fact, college graduates’ annual earnings are about $24,000 higher than median earnings for those with just a high school diploma, according to BLS data.

Working vs. borrowing your way through college

A college graduate’s earning potential is much higher than a college student’s. In many cases, it makes more financial sense to borrow to cover college costs now and pay for it later when you earn more.

For instance, at the average 2016 graduates’ hourly wage at $25.27, here’s how many hours of work are needed to cover college costs:

  • 149 hours (almost 4 full-time work weeks) to cover $3,770 of typical net costs for college students
  • 382 hours (9.5 work weeks) to cover $9,650 average annual, in-state tuition
  • 795 hours (about 20 work weeks) to cover $20,090 in tuition plus average room and board

But whether this cost-benefit analysis makes sense in the real world will come down to the gritty details of your financial situation.

Here’s what you need to consider when deciding between working or borrowing your way through college.

What are you earning now?

A typical college graduate’s wages, and ability to repay student loans, is about 3.5 times greater than a minimum-wage worker’s ability to cover college tuition.

But many college students might be earning well above minimum wage.

For instance, workers with some college education have wages closer to $18 or $19 an hour, according to BLS data. So if you have a job that pays enough to help offset your tuition and living expenses, it might be worth the effort to stick with it. And, you’ll avoid student debt.

What can you expect to earn after graduation?

The average $52,570 annual salary for college graduates probably sounds pretty good to most of them.

However, not every college graduate can expect to make that much after graduation. Depending on your major and the career track you pursue, you could be repaying student loans on a salary that’s much lower.

Education majors, for example, can only expect to make around $34,890 for their first job after college, according to NACE data. With lower incomes post-graduation, most of them should focus more on managing costs and paying as they go to minimize borrowing.

For a computer science major, however, earnings right out of college are twice as high — $71,530. Therefore, borrowing for them may help them get through college and get to high earnings faster.

Even then, however, there are no guarantees. So make sure to limit borrowing as much as possible.

Whatever their majors, current college students should be researching their post-college career prospects and earnings potentials. Knowing these figures can help them make responsible borrowing decisions now and keep student debt affordable later.

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Can you balance school and work?

Students also need to consider how work will affect their studies. Or, their ability to maximize learning opportunities during college.

Yet, studies have shown that working 12 hours or less a week can actually have a positive impact on graduation rates and even GPA, reports FastWeb.

Essentially, holding a part-time job can help students develop time-management skills and perform better. It can also help build valuable, real-world work experience.

But past 12 hours a week, those returns diminish. Students become less likely to graduate on-time or complete a degree. And, a heavy work schedule can add to the demands of school and exacerbate stress at the expense of a college student’s mental health.

College students who do work should try to limit their hours and pay attention to how work is affecting their studies. After all, those higher post-graduation earnings require actually graduating.

If work is threatening your ability to make progress on your degree, cutting back on hours and using student loans to fill in the gaps may be a strategic move.

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Do you receive any financial assistance from family members?

The above-mentioned tuition, room, and board costs are high. Fortunately, many college students are still getting at least some assistance from parents or family members to get through school.

For instance, college students who can live with parents and attend an in-state school will see costs go down from more than $20,000 a year to less than $10,000.

Therefore, if your living expenses are paid for, working to cover tuition as you go will be much more feasible.

Other parents might offer to cover tuition costs. Then, the student is expected to pay for rent, food and other expenses out-of-pocket.

Discussing college costs with parents or other family members will help you figure out the actual college costs you’re responsible for. When you know the costs you’re responsible for, you can decide if you’d bet better offer working or borrowing to pay them.

What about financial aid?

Financial aid can be a big help to college students. As mentioned above, 70 percent of students get federal grants to help with college costs, which can help reduce average net tuition by 60 percent.

Once you know how much federal aid you can get, you can effectively decide if working while in college makes sense. For many students getting financial aid, a part-time job can effectively help cover the remaining tuition costs. And living expenses.

Students should be aware, however, of how their income might affect what kind of aid they can qualify for through the FAFSA. It’s possible that their part-time income will put their family in a higher income range. And, subsequently, disqualify the student for federal aid.

Talk to your school’s financial aid office to see how your income could affect your federal student aid. They can also help you figure out steps to help you minimize this impact.

What is the right balance for you?

Student loans exist for a reason. They are an important financial tool that, if used wisely, can grant you access to greater opportunities. And, help you make a smart investment in your future.

At the same time, it’s always best to limit your student loans as much as possible. And working through college can help you with that.

Finding the right balance between working and borrowing to get through college can be tricky. But college students who think their decisions through can ultimately decide on the smartest course of action for covering their costs. Without free-falling into debt.

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