All About Student Loans

You’re not imagining it: college has gotten much more expensive over the years. The average annual total tuition, fees, room and board rates charged to full-time undergraduate students in degree-granting, four-year institutions has risen from $11,548 in 1984–85 to $25,409 in 2014–15 (both amounts are in constant 2014–15 dollars), according to the National Center for Education Statistics (NCES). The average cost of attending a public institution rose from $8,238 to $18,632 during that time, while the average cost of attending a private institution rose from $18,910 to $37,990.

So it’s not surprising that for 2014–15, the most recent school year for which the NCES has compiled data, 86 percent of first-time, full-time undergraduates were awarded financial aid in the form of grants and loans. In 2016, 63 percent of 18- to 29-year-olds who had completed a bachelor’s degree borrowed money to finance their education, the Federal Reserve Board found. Among U.S. households with debt, almost all had student-loan debt, and the median amount was $17,000, as the table below shows.

It’s also no wonder that so many students think the cost is worth it: Young adults ages 25–34 who worked full time, year round, had median earnings of just $30,500 with only a high school degree in 2015, but of $50,000 with a bachelor’s degree. Another stat you might have heard is that students who graduate from college earn $580,000 more over their careers than students who only graduate from high school. Borrowing money prudently to pay for college, it seems, can have a quick and guaranteed return on investment.

Student Loan Benefits

The requirement to make student-loan payments – and to budget and make life decisions accordingly – can be a great lesson on what it means to be an adult at an early age. If you learn to manage debt and income responsibly starting before you even enter college, this skill will serve you well for the rest of your life. You can learn how to live with less and how to separate must-have expenses from nice-to-have ones. This isn’t a reason to take on student loan debt, but it is a potential side benefit of something that might seem largely negative. You can learn habits that will enable you to afford things like starting your own business, going on exotic or extended vacations, paying cash for major purchases, buying real estate and, maybe one day, retiring.

Borrowing money to pay for your education can give you skin in the game that students whose parents pay their entire tab don’t have. Knowing what you’re personally sacrificing for your education can motivate you to work harder in school and to focus on getting a degree that will lead to a job that will pay enough to unburden you from your loans. Having to borrow might also mean that you make the more responsible choice – the in-state school where tuition is low – as opposed to the potentially irresponsible one, the private liberal arts college where tuition, room, board and other fees amount to is $60,000 a year.

Student-Loan Burdens

Student-loan payments become a mandatory monthly expense once you graduate. If that expense is too high relative to your income and your other necessary expenses, it could limit your options going forward. For example, you might need to live with your parents or live with roommates when you’d prefer to live alone; you might have to live in a less-nice apartment in a less-than-ideal part of town; you might have trouble saving up to buy a home; and you’ll need to earn more to make ends meet, which might mean you have to emphasize earning a certain salary over finding the ideal fit in your job search. While student loans often have flexible repayment terms, the longer you take to repay your loans, the more interest you’ll pay and the more expensive they’ll be overall.

If you take out student loans to enter a certain field and then find that you can’t get a job in that field, don’t want to work in that field after all or can’t get the salary you expected, loans can become not only a financial burden but a psychological one as well – just ask anyone who’s ever taken out law school loans and decided not to become a lawyer or gone into the low-paying profession of public defense. In fact, many students take out student loans to earn an undergraduate degree, then decide college is not for them or get derailed from pursuing their degrees. But you must repay your loans whether you graduate or not. 

If your parents take out student loans in their name to help you out – or if they cosign on your loans – the burden of those loans extends to them as well, which could affect your relationship. Your parents might expect to have a say on your job choices or career path because they want their investment in your future to be financially worthwhile.

In this tutorial, we’ll teach you everything you need to know about student loans. Ideally, you’re reading this tutorial before you’ve borrowed a penny, but even if you’re already in debt, we’ve still got helpful tips for you.