Question of the Day: Should You Take Out Student Loans for College?

Sep 22, 2014

One of the more popular personal finance curriculum providers includes a lesson on how students can go to college without taking out student loans:

“There’s a lesson I’m really looking forward to about how to pay for college without taking out student loans,” she said. “I’m anxious to see what they have to say because that’s a huge concern. Student loans are oftentimes large and hard to pay off.”

What a great opportunity to have students debate this question after building up arguments for both sides!  Send them out to the web for 25-30 minutes and have them develop the strongest arguments with data to support their position.

In terms of key points that students should cover:

  • Community college route can be cheaper but also need to be aware of hurdles of going from community college to 4-year school (credit transfer, working while going to school, obstacles)
  • Not all college degrees are created equal; what you major in and where you go to school can have a major impact on your earning potential when you graduate.
  • Introduce at a basic level, the concept of “Return on Investment.”   Education costs money for which you expect to earn a return in terms of your ability to earn more over your career.  If you don’t graduate from college you won’t significantly improve your earning ability and will be saddled with debt.
  • Schools are required to report their cohort default rates or number of students who can’t pay back their loans.  If the number is high (over 10%) you might want to ask school administrators why.
  • One popular rule of thumb if you take out student loans is to not take out more than your expected starting salary coming out of school; more conservative approach is to not take out loans beyond the federal loan limits ($31,000 currently).
  • Student loan debt is a commitment that need to be paid back.
  • Repayment terms, including income-based repayment, is making loan repayment for federal loans less onerous.
  • Most expensive schools not always the best schools.  Don’t equate cost with quality.

Let the debate begin!

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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