College Planning: When to Consider Student Loans

January 9, 2023

As you’re figuring out how to pay for college, you may need to turn to student loans to cover whatever savings, scholarships, and other types of aid can’t. Loans can be intimidating—and understandably so. However, for many students, loans are also the reason why they’re able to attend college in the first place.

Taking out a student loan is a big decision, one that you should be informed to make with confidence. We’re here to walk you through the pros and cons of student loans so you feel empowered to do just that.

Pros of Student Loans

College is expensive. On average, it will cost $10,423 to attend a highly ranked public college as an in-state student, $22,953 to attend as an out-of-state student, and $39,723 to attend a private college during the 2022–2023 academic year. For many families, this price tag can’t be covered by savings, scholarships, grants, and work-study. Student loans can help people overcome financial barriers and attend colleges they otherwise wouldn’t have been able to afford.

Federal student loans offer repayment and forgiveness options. From income-driven repayment plans to Public Service Loan Forgiveness, borrowers with federal student loans may be able to take advantage of various programs designed to reduce the financial burden of monthly loan payments. Federal loans also offer interest rate reductions for automatic payments and the opportunity to defer payments if you experience financial hardship.

Many loans don’t require payment while you’re in school. As a student, you’re already juggling a lot, without the added responsibility of making monthly payments. Generally, you have to be enrolled at least half-time to satisfy this requirement. Once you leave school, or drop below half-time, you’ll be expected to begin repayment. However, some loans—such as federal Direct Loans—do offer a grace period before you need to start making payments. 

Cons of Student Loans

You’ll end up paying more than you borrowed. Student loans accrue interest, so your payments will ultimately total more than the principal. While no one can predict the future, it’s important to consider your anticipated salary and general living expenses after graduation when evaluating loans. If your career path requires you to attend graduate school, you should factor in this cost as well.

Monthly payments can be hard to manage. While federal loans offer income-driven repayment plans that cap your monthly payment based on your income (so it can be as low as $0), private loans do no such thing. Private loans can also have higher interest rates than federal loans, with some getting into the double digits. 

Defaulting on loans will damage your credit score. Failing to pay your loans will result in a default, which can significantly wreck your credit score and ability to obtain credit down the road. This can also have implications for obtaining an apartment lease, as credit checks are typically required.

Before you take out loans, it’s worth exhausting all other financial aid options before turning to loans.
The most effective way to reduce the amount you’ll need to borrow is by saving early. Our College Savings Planner can help you see what you’ll need to save in order to pay for college out of pocket. You can also read about 529 Plans and how they can help maximize your savings in this article. 

Furthermore, not all loans are created equal, and it’s important to understand the terms of any loan you’re considering. We recommend reading through our article discussing the differences between federal and private loans. 

Everyone’s situation is different, so there’s no simple answer to whether or not you should take out a student loan. Loans can come with significant risks; however, for many families loans can play a life-changing role in financing a college education.

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