Is Taking Out a Student Loan To Finish College A Good Idea?

Whether you’re heading to college for the first year or trying to get finished up, it’s common to find that a college education is more expensive than you planned. Your savings and scholarships might not be enough. Are student loans a necessary evil – or can taking out a student loan be a good idea?

Taking out a student loan to finish college is a good idea if it is the only option to get the student to their graduation date. A majority of undergraduate students will find themselves taking on some form of debt to finish their education. The type of loan you get, however, makes a difference.

This article will discuss whether it is the best option to take out a student loan as well as reasons people opt for student loans. Continue reading to learn the pros and cons of student loans, the process of obtaining them, and how they are different from scholarships and grants.

Are Student Loans Worth It?

The question of whether or not you should take out a student loan is very dependent on your financial situation and your best approximation of your financial situation in the future.

For example, many students in law school will take out student loans as they expect to be able to pay those loans off quickly. The cost for a student to attend an in-state public law school for three years is approximately $84,792. Many will take out student loans to cover these costs, but lawyers make an average of $73,604 a year, so they are able to pay these loans off in less than five years.

Student loans have been thought to be considered somewhat of a “necessary evil.” While you will be putting yourself in debt by taking out these loans, they are meant to help further your education, so you will hopefully have better job prospects in the future.

A Student Loan Can Help a Student Reach Graduation

Student loans can help someone further their education if they are unable to afford it. Federal student loans and private student loans have both proven to help pay for tuition costs, textbooks, and housing for students attending college or university.

Student loans have given many people access to higher education, who would not have otherwise been able to seek higher education due to a lack of finances.

According to Derek Brainard, Director of Financial Education at AccessLex Institute, “when used strategically, student loans can be a gateway to higher earnings and career satisfaction over a lifetime.”

A College Diploma Paid with a Loan Comes at a High Cost

Most will cite the main reason why student loans are bad is the amount of debt it places the borrower. The amount of money you will take out when obtaining a student loan is often compounded with interest, so you will be paying back more than you had borrowed.

Many experts have advised against taking out student loans because:

Starting cost. The average amount to obtain a bachelor’s degree is expensive
Interest. Interest on the loans compound, so you will be paying more back than you take out
Risk. Your future income is seen as collateral for your student loans
Impact on credit. They can damage your credit score

Despite these disadvantages to student loans, many who want to further their education do not have much of a choice in the matter of whether or not to take out the loan in order to go to school. The average cost for a student to attend a four-year university is $35,720 in the United States.

How Compound Interest Works

Essentially, compound interest is interest on interest. Compound interest can benefit someone who is investing as compound interest can be advantageous, but it can be disadvantageous when it comes to paying off debt as the amount of debt will increase over time.

Compound interest can be defined as interest on a loan or deposit that is calculated based on both the initial principal and the accumulated interest from any previous period.

While there are different types of compound interest, federal student loans are not compounded daily as a credit card does. For student loans, as long as your monthly payment covers the interest that has accrued, then the interest is not compounded.

If your monthly payments do not cover the monthly interest, however, your overall loan balance may grow; this is known as negative amortization. So, it is important when taking out a loan to know how interest on the loan will accumulate if it does at all.

Other Potential Benefits Of Taking A Student Loan

While many experts have claimed that it is not a good idea to take out a student loan, it is not necessarily a bad idea to take out a student loan. As previously stated, student loans have helped many people afford to attend a college or university and further their education.

Repayment Can Help a Graduate Build Credit

Your payment back on these loans in order to pay them off also can help to build your credit. By taking out student loans and paying them off, they can help to better your credit and increase your credit score. Student loans can help increase your credit score because:

If you pay back on your loans on time, it can increase your history of on-time payment
They allow you to have a longer credit history
They can be included with other forms of debt to prove you are able to manage debt well
The amount you owe relative to the original balance of your student loans can affect your score as paying down your loans can decrease the balance and increase your credit score

The Increasing Cost Of Tuition Forces Many Students To Take On Loans

The biggest reason behind a student taking out a loan in order to go to school is to pay for the individual or family contribution to paying one’s tuition. While a student may be able to obtain scholarships to help pay for college expenses, these often do not cover the full cost of a student’s education.

What Influences The Price Of Attending College?

Some factors that influence the cost of a student attending university and how much they have to pay are:

Whether the student pays in-state or out-of-state tuition
Scholarships
Grants
Meal plans
Housing
Fees determined by the university
Price of textbooks

Each of these factors influences how much the student will be paying to attend the university. While some of these factors cause students to pay different prices, such as in-state or out-of-state tuition and the housing the student lives in, many students find that they are unable to finance the money themselves in order to attend.

The Increasing Cost of Tuition

The average cost of attending college has been increasing over the years. While the tuition fees for the 2019-2020 school year and 2020-2021 school year have had the lowest increase in thirty years, the cost of tuition is still on the rise.

In 1976, one could attend a four-year college, and the total for tuition, room, and board would come to approximately $2,577. In 1986, a student attending a four-year college would see an increase in tuition, room, and board causing the price to be anywhere between $5,504 to $5,964.

This would then increase again throughout the years, and the average student attending a four-year institution to pay upwards of $20,000 to attend. Most students do not have $20,000 dollars a year on hand in order to pay their tuition, so they must look toward other methods of paying, and many choose to take out student loans.

The Rising Price of Textbooks

While tuition costs contribute to the majority of the money a student must pay to attend college or university, the price of textbooks also contributes to that price.

Depending on the major you chose to pursue during your time at a university or college, the amount of money you will be spending on textbooks will vary.

While there are options to purchase books online, rent them, or purchase them used, some course instructors will require that students purchase the newest copy of a textbook and have a physical copy for class.

For example, an English major’s course load will focus more on works of literature that tend to be much cheaper than large textbooks. In this case, an English major will be paying less for textbooks than someone who has to buy many technical textbooks and workbooks, but this depends on the number of books the student will need to purchase.

On the other hand, a Chemistry major will need to purchase many large, more technically-written textbooks that tend to be much more expensive. People with this major would also possibly need to purchase workbooks and other books that explain specific concepts which cause the price of their textbooks to be higher.

The Pros and Cons Of Taking Out A Student Loan

When taking out student loans, much like making any major decision, it is best to weigh the advantages and disadvantages against each other in order to make a more informed decision.

Pros	Cons
Help cover tuition costs	Will need to be paid back after graduation
You are able to pursue a degree to help get a more successful career	Starting off adult life in debt
Can help build credit	Defaulting can lead to added interest and fees
Subsidized loans do not accrue interest until the borrower enters the time for repayment	There are borrowing limits for federal student loans
Can be deferred if you return to school or enter into military service	You could be borrowing more than you need, putting you more in debt
Some loans can be forgiven after a certain number of years

While there are many pros and cons when it comes to student loans, it is best to remember that if you do borrow money to finish school that you borrow the minimum amount you will need to finish your education. It is best to try to keep yourself in the least amount of debt possible.

How To Get A Student Loan

Now that we have discussed whether or not you should take out a student loan to finish your pursuit of higher education, we can move on to explain how one can go about obtaining a student loan.

Fill Out the FAFSA for Federal Student Loans

In order to get a student loan in the United States, you must first fill out and submit the Free Application for Federal Student Aid or FAFSA form. The FAFSA is based on either your or your parents’/guardians’ finances, including tax returns.

Once completed, your college or university will use the FAFSA form you submitted to determine how much your family contribution will be toward your college expenses as well as what scholarships or grants you may qualify for to help with those expenses.

After your college or university sends you your financial aid offer, you may find that a federal student loan may be included in the list of financial aid. From here, you should be able to accept or decline the loan offer or accept part of the offer.

There are two steps you must complete once you accept the offer for the federal student loan, and these must be done whether you accept the full loan or part of the loan.

Complete the entrance counseling
Sign a Master Promissory Note

Each of these are important steps in receiving a federal student loan. The entrance counseling helps you to understand your obligations in paying back the loan. The Master Promissory Note proves that you agree to the terms of the loan.

How To Get a Private Student Loan

Getting a private student loan is different from getting a federal student loan in that you have to do a little bit more research when obtaining a private student loan. There are many places that can offer a student a private student loan, and most universities or colleges will have a “lender list” that can help you narrow down your search.

Private student loans can be taken out by the student themselves, or, in some cases, a parent or guardian can take out the loan for the student, as long as the individual is creditworthy. This creditworthiness is also the case when it comes to the cosigner for the loan.

In order to get a student loan, the student will need to have a cosigner in order to get approved for the loan as many going straight into college from high school are not considered creditworthy at the time they are applying for the loan.

It is also important to only borrow as much money as you need. If you only borrow enough to cover the cost of tuition and related expenses, the amount you will need to pay back will be much more manageable.

What Types of Financial Assistance for College Do Not Need to Be Repaid?

When looking for ways to pay for college, students are told that the big three are scholarships, grants, and student loans. Each of these can be obtained by a student in order to cover the cost of tuition, housing, textbooks, and other related expenses. But what is the difference between the three? Most often, it’s about whether or not the money has to be paid back.

Scholarships

A scholarship is one of the many forms of financial aid a student can obtain upon seeking entry to a college or university. There are scholarships that are based on academics, scholarships that are based on athletics, and scholarships that are based on financial need.

Examples of scholarships are:

The Starbucks College Achievement Plan
The Coca-Cola Scholars Program Scholarship
Google Conference and Travel Scholarships
Future Educator Scholarship

By doing a quick search, you can find many different scholarships that you can apply to in order to get money for college. Some scholarships can be obtained through your job or community as well.

Some places which tend to higher students in high school will offer some form of scholarship to pay a small bit of the cost for the student to go to college. There is also the chance that the community you live in, typically if you live in a more gated community, will offer some scholarship to specific students.

Grants

A grant is another form of financial aid, much like a scholarship, which can be gifted to a student. While scholarships tend to focus and be given to students based on merit, a grant is often based on financial need. Most grants do not need to be paid back.

The Federal Pell Grant is an example of this form of financial aid. Some other grants that one could apply for are:

The Federal Supplemental Education Opportunity Grants
The Iraq and Afghanistan Service Grants
The Teacher Education Assistance for College and Higher Education Grants

The grants listed above have specific qualifications that if you have you will be able to apply for these grants and possibly attain them to use in order to pay college expenses. In order to remain eligible for certain grants that you can have for multiple years, you would need to follow the guidelines set for the specific program.

Some of these guidelines could include a specific GPA, a certain course load you have to take, or other specifications that one would need to follow.

Student Loans Must Be Repaid

Compared to scholarships and grants which are often gifted to students and do not require any money to be paid back, student loans must be taken out by the student or the student’s parent or guardian and must be paid back.

Student loans can be obtained through the federal government or through more private organizations. The type of student loan you take out will determine how much money you can borrow as well as when you can start making payments back on the loan or when you will start making those payments.

Alternatives To Taking Out Student Loans to Finish College

While scholarships, grants, and student loans can help you pay some or all of your college tuition as well as expenses, there are other alternatives you can choose which help to lower the cost of going to or finishing college.

Taking A Semester Off to Work

While many want to power through the four years it would take to obtain an undergraduate degree, there is the option to take time off from college work to focus on other matters, such as making money to pay for college. Many find that it is difficult to balance taking college classes and having a job, so taking a semester off in order to work and make money is an option to help pay for the remaining semesters.

Moving Home

Another option that can help lower the cost of college is moving back home. If your family happens to live not too far from the college you attend, it is wise to move back home. This saves you from paying to live on campus or in an apartment.

Finding A Paid Internship

A paid internship is another way to make money in order to earn money to finish college. Many advisors agree that an internship helps students get a feel for the career path they choose, so looking for a paid internship in the field you want to go into can help check off the boxes for getting experience in that field as well as helping pay for college.

Working While in College

Finally, an option that many college students will go with in order to help pay for college is working a job while attending college classes. While this does put more strain on the student since they must balance school life and work life, the money you make while working can help cover some of your college costs and possibly provide some pocket money to keep for yourself.

Can Student Loans Be Forgiven? If so, When?

Since you now know the advantages and disadvantages of student loans as well as how to obtain a student loan, you may be wondering if there will come a point in time when your student loan could be forgiven, and the answer to that question is yes. There are ways for a student loan to be forgiven.

When a loan is forgiven, the borrow, such as yourself, is no longer responsible or required to repay some or all of the loan. In order to qualify for loan forgiveness, specific eligibility requirements must be met.

The three types of forgiveness that are available for those paying student loans follow below.

Public Service Loan Forgiveness

This program will forgive the remaining balance on Direct Loans once you have made 120 qualifying payments under a repayment plan while you are working full-time under a qualifying employer.

In order to qualify for this program, you must have direct loans (that you have already made 120 payments on) and work for a qualifying public institution. There are very specific eligibility requirements that you can find here.

Teacher Loan Forgiveness

If you teach full-time for five complete and consecutive academic years in a low-income school, you may be eligible for some forgiveness on your Direct Subsidized and Unsubsidized Loans for up to $17,500.

In order to be eligible for Teacher Loan Forgiveness, there are also strictly outlined eligibility requirements. You can find those here.

Military Service

Special student loan benefits and repayment offers are available for those who are currently serving in the United States military or who have previously served. Some of these benefits include interest rate caps, deferments, and low-interest programs designed specifically for members of the U.S. Armed Forces.

Those with military service can find out what kind of repayment assistance they qualify for here.

Final Thoughts

When it comes to taking out student loans, it is advised to only take out the loans if you absolutely have to. Student loans can help you cover any college expenses you are unable to pay yourself. They can be obtained from the financial aid package provided by your college or university or you could seek out private student loans from other lenders. Student loans are just one of the many ways you can pay for your college education.

It is also important to know that some parts of student loans can be forgiven if certain conditions are met, which can make the burden of paying them back a little bit easier. Student loans can be considered great for some who are looking to get a college education but cannot afford the price of tuition. However, student loans can also be seen as a terrible burden as they put you in debt.