Updated on 09.13.16

The True Cost of Student Loans

writing a check

Choose an expensive college or borrow more than you need, and you might still be writing student loan checks when you’re 50.

When you’re 18 years old and preparing to leave the nest, it’s easy to think you’ve got it all figured out. You’re ready for college, and you know that a college degree is a good investment in your future. And you’re willing to do almost anything to make your college dreams come true, even if it means taking on a good deal of debt. But is that really a good idea?

First, let’s put aside the cost of college and focus on the value of a college degree. Almost all modern research points to the fact that yes, a college degree is a good investment.

According to a recent study from the Federal Reserve Bank of New York, adults with a bachelor’s degree earned almost $23,000 more per year — that’s every year, over an entire career — than high school graduates in 2014. Meanwhile, degree holders have an easier time finding a job to begin with: The unemployment rate for high school graduates was 6% in 2014, but just 3.5% for bachelor’s degree holders.

The School You Choose Matters

You can’t argue with the fact that, yes, a college degree is most likely a good investment in your future. The problem is, college degrees and their associated costs are far from standardized. Depending on the school you choose, you could easily pay twice as much (or even three or four times) for the same degree at a different school.

Pick an affordable option and you could end up far ahead of the rest. Pick the wrong school and you could end up chained to student loans for your entire lifetime.

A look at the most recent figures from College Board shows exactly what I mean. Using national averages for the 2014-15 school year, College Board illustrates the average college tuition at various types of institutions of higher education:

Tuition and Fees, 2014-15

  • Public two-year in-district: $3,347
  • Public four-year in-state: $9,139
  • Public four-year out-of-state: $22,958
  • Private nonprofit four-year: $31,231
  • For-profit: $15,230

As you can see, the type of school you choose can make a big difference in how much money you’ll fork over to sport that fancy cap and gown. And, more importantly, how much you have to borrow.

While financial aid can cut down the cost of earning a college degree quite significantly, it isn’t always enough to make up for the disparity between, let’s say, a public four-year in-state school and a private nonprofit.

Let’s be frank. Most of us don’t have the cash to pay for college anyway. Even when the Bank of Mom and Dad are there to help, the vast majority of students still need to borrow the rest. And while student loans are almost always considered “good debt” that can pay for themselves many times over, this is the moment where fortunes are made and lost.

This is the moment where you decide what kind of life you truly want to have – a lifetime of debt, or one where it’s easier to start a family, buy your first home, and move on with your life. When you’re young and ready to conquer the world, it’s hard to put debt into perspective. Here’s what those student loans really mean:

You May Have to Wait to Buy a Home

According to the most recent data, approximately 70% of 2013 college graduates left school with almost $30,000 in student loan debt. Meanwhile, the average starting salary for college graduates in 2014 came in at $45,473.

Imagine starting your first job after college with a debt load equal to two-thirds of your first-year salary while also considering the prospect of buying a home, purchasing furniture, or even getting married. When you look at it that way, it’s no wonder that so many millennials are putting off their first home purchase in order to focus on paying off their student loans.

It’s not that you can’t qualify for a mortgage if you have student loan debt; it’s that monthly responsibilities like student loan payments, car payments, and other bills affect your debt-to-income ratio and play a part in how much you can borrow.

Most banks only allow a total debt-to-income ratio of around 43%, meaning your monthly payments for all debts combined must equal less than 43% of your gross income.

This is where student loan debt makes things much harder; not only does it chip away at your ability to borrow for a new home purchase, it also eats up funds you could use for a down payment.

The bottom line: Student loan debt may make it harder to buy a home. And the more debt you have, the more difficult it will be to move on to that next phase in your life.

You Could Still Be Paying Them Off When You’re 50

When the Federal Reserve Bank of New York analyzed student loan debt delinquency for the study “Student Loan Borrowing and Repayment Trends, 2015,” a striking trend emerged among all borrowers, both young and old. According to the study, nearly half of all student loan borrowers, or 46%, are listed as “current” on their loans, but are not actually in repayment.

What does that mean? Simply put, of the $1.2 trillion dollars Americans currently carry in student loan debt, more than $500 billion is just sitting in limbo, either because students are still borrowing to finish school or because they are still in deferment.

No matter how you cut it, that’s a lot. Meanwhile, it also says a lot about where we are headed. With so many borrowers still in deferment, it makes you wonder, “How long will it take for many of these borrowers to pay off their loans for good?”

According to the Consumer Financial Protection Bureau, the standard repayment schedule for federal student loans is 120 months, or 10 years. If you graduate from college at age 24, for example, and start paying right away, that means you can be debt-free when you’re 34. Not bad.

The problem, however, is that the more you borrow, the harder it will be to pay it all off. And that’s why people with certain types of loans, and much bigger balances, can opt for an extended repayment plan that takes up t0 25 years. Your payments might be lower, but you might literally be paying them off until you’re a grandparent.

There’s No Way Out (Usually)

Here’s the biggest thing most young students fail to consider before they borrow more than they really need to – once you borrow the money, there’s no going back. You don’t get a redo, you can never discharge your loans in bankruptcy, and no matter what life throws at you, you’re stuck.

Aside from income-based repayment plans, which may grant complete loan forgiveness after 25 years, and some loan forgiveness programs for federal loans, you have few options aside from consolidating your loans or refinancing them in order to get a better deal. But even then, you will ultimately have to pay them off.

We’ve all heard stories about poor souls who overpaid for degrees that would likely never pay off. For example, an acquaintance of mine who paid $60,000 for a degree in women’s studies. And ahem, my own husband, who earned his first bachelor’s degree in theatre arts.

Once you make that choice, there is often no going back. And once you realize you made a mistake or borrowed much more than you ever expected, it’s too late.

Debt Can Stand Between You and Your Dreams

One thing that is hard to envision when you’re younger is just how much more difficult everything becomes when you’re in debt. That’s true of any kind of debt, of course, whether it’s credit card debt, an overbearing car loan, or even student loan debt.

And when you’re trying to live a normal life after you graduate, the more you owe, the more cumbersome it can be. A $30,000 loan at 6% might only cost $333 per month to service. However, someone who owes $70,000 might need to pay as much as $777 per month for 10 years.

But it gets worse. A student who leaves school with $100,000 in student loan debt could owe as much as $1,100 per month for the next 10 years of their life.

Imagine all you could do with that money. Instead of schlepping your dollars to your student loans every month, you could buy a home and start a family. You could take a year off and travel the world. You could start a business. You could invest in your future.

That’s why it’s important to think long and hard before you sign that loan application. How much you borrow could make a big difference in whether you can follow your dreams – or whether you have to keep dreaming indefinitely.

How to Keep Student Loans at Bay

Remember, borrowing money for college isn’t the problem – it’s how much you borrow that can truly hurt you.

That’s why you need to be smart about the amount of student loans you take out, in addition to the degree program you plan to pursue. Here are some tips that can help you make the best decision possible:

  • Look for free money: Before or during the student loan application process, seek out as many free money sources as you can. These can include scholarships or grants for your specific field, or for your state or local area. Sites like StudentScholarshipSearch.com can help you explore your options.
  • Only borrow the funds you need: Many financial aid packages offer more than enough to pay your college tuition, with the excess coming back as a “refund” you can use for living expenses or other costs. To avoid temptation, avoiding borrowing money that isn’t earmarked for school. Instead, cover any college “extras” with money from your savings account or a part-time job.
  • Pay interest on unsubsidized loans while still in school: Some loans accrue interest while you’re still in school, and if you want until graduation to repay them, you will end up paying interest on your interest. To avoid that situation, keep current on interest payments while you’re still in school.
  • Compare schools based on affordability and financial aid: Just because you dreamed of attending a certain college since childhood doesn’t mean that it’s still a good idea. Before you take the plunge, you should always compare the total cost of earning your desired degree among at least two or three schools. In most cases, earning a degree from a private or elite school will not provide enough of an advantage to make it worth the additional expense. So weigh your options and look for a college that provides an exceptional value.
  • Choose a college major that makes financial sense: Choosing a college major that makes financial sense is just as important as choosing an affordable school. We’ve all heard how choosing a lackluster college major can lead to a lifetime of poor job prospects and low pay. Before you choose a college major, check the stats! See whether your degree will make sense in the future, and decide whether your student loan debt will make sense when compared to your potential earnings.

How much money you borrow can have a direct impact on what your life looks like 10, 20, or even 30 years from now. So before you sign on that dotted line, stop and think. Doing some research now could lead to a simpler, richer life once you graduate – but only if you really consider what your student loan debt might really mean.

Holly Johnson is an award-winning personal finance writer who is obsessed with frugality, budgeting, and travel. She blogs at ClubThrifty.com and teaches others how to write online at EarnMoreWriting.com.

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