Pros and Cons of Taking out Student Loans

Every year, students struggle with the decision of whether or not they should take out student loans. Unfortunately, the majority of students are unable to get through college without some form of financial assistance, usually through a student loan. Even students that are technically able to afford college on their own will often consider taking out a loan. For these students, loans provide a small safety net, since they are not forced to drain their savings or try to balance a full-time job while also attending school.

Even students who know they must take out a loan are forced to decide exactly how much aid they need. It is not uncommon for students to find it difficult to estimate exactly how much financial aid they will need, especially if they are attending college for the first time. Ultimately, there is no right answer to whether or not a student needs to take out loans. Each student must consider the pros and cons of taking out loans, as well as his or her financial situation. In addition, students must take into account what other type of financial aid is available through the school, such as scholarships and educational grants.

Advantages of Taking out Student Loans

Without a doubt, the primary advantage of taking out a student loan is the financial benefits. Attending college is very expensive, and while scholarships and grants can help reduce the cost, many students either have to take out a loan or delay going to college so they can focus on working and saving up money to afford school on their own. Some students are able to work while they are attending school to avoid relying on loans, but this usually comes at the cost of taking fewer classes each semester in order to get more hours at work. Another issue is that many of the higher-paying jobs require a college degree in the first place, so students who take out a loan may end up being in a stronger position financially simply because they can graduate and get a higher-paying job.

One of the fears that many students have regarding their loans is becoming trapped by high interest rates. However, this is only a fear with private loans. Students who are worried about interest rates should take out federal student loans instead. Federal student loans always have a fixed interest rate. In addition, students have much more flexibility in terms of paying off federal loans. Lower-income students benefit more from federal student loans, since there are specific programs designed to help with their financial situations. Finally, many federal loans are subsidized, so the student does not have to pay off any interest rate that accrues on the loan while he or she is still in school.

Another benefit of borrowing money to go to college has to do with the act of taking out the loan itself. For the majority of students, taking out a student loan is their first major financial transaction. Taking out a student loan provides students an opportunity to start building their credit history. In addition, it prepares students for taking out loans in the future, such as when they want to purchase a home or a vehicle. Taking out a student loan, especially if it is a federal one, is generally considered safer than receiving other types of loans. This makes it a good learning experience for many students and helps them make better deals or avoid predatory terms when they have to take out a loan in the future.

Another possible advantage for taking out a student loan is the possibility of a loan forgiveness program. It is important to note that loan forgiveness programs are very situational, and they will not be available to all students. Through a loan forgiveness program, students are able to fulfill certain criteria to have their loans paid off by another group. For example, students may be able to teach in a lower-income school for several years instead of paying off their debt.

Disadvantages of Taking out Student Loans

While student loans are very helpful, they also come with certain disadvantages, particularly as it relates to interest rates. Even with fixed interest rates, students are likely to graduate college and be in debt from their student loans. Some students frequently have a difficult time getting out of debt. Part of the challenge is that the majority of students are unable to work while they are also attending college. Even the students who do work are not going to make enough to fully pay off their student loans right away.

Students do have access to better jobs after they graduate, but most are not lucky enough to land a high-paying job right away. There is likely a period of at least several months or even years where students are not earning a significant income. Even students who do land high-paying jobs right out of college have to decide between paying off their debt and building up their savings. Students who only borrow a small amount of student loans have a much greater chance of paying them off quickly, so the amount borrowed is an important consideration.

Another financial disadvantage with student loans comes from payment schedules. Federal student loans have more flexibility, but students who constantly miss payments will eventually be forced to pay off their loans. Students who miss enough payments may have their wages garnished or receive court orders to make their payments. They will also have a lower credit than those who are able to pay their loans off on time. Private loans are even harsher, and many private loans have additional penalties for students who miss payments.