While you may hear about how many people regret taking out student loans, there are reasons why you may want to do so. Here are some things to factor in when deciding to take on a student loan or not.
Pros:
Student loans can be used for other expenses besides tuition, room, and board. Many people think of student loans as only being able to be used on things like tuition, room, and board. And though that indeed is what you will use the bulk of your loan money on, you can also use your funds for essential college expenses like textbooks, a laptop, and computer software. Those are not insignificant costs, and the fact that student loans can ease the burden on you and your family is a good thing. However much student loans suck, they carry much lower interest rates than expensive credit cards or personal loans.
Next, paying off student loans may help you build credit. Student loans, used responsibly, can help college students and graduates build their credit scores. Because many college students don’t have any other bills or debts associated with their names, student loans may be the only way for students to begin building their credit history. Having a good to an excellent credit score will come in handy throughout the rest of your life as you apply for apartments, look for credit cards, finance a home purchase, and even when you’re applying for jobs.
Cons:
Student loans can be very expensive. When you borrow student loans to pay for your college education, you don’t just have to pay back the amount that you borrowed: You have to pay back interest as well. On the high end, that can be comparable to a credit card. If you can afford to pay for college without using student loans, it would be in your best interest to do so. And be sure to always accept federal student loans first, before turning to private student loan companies, to save more money.
Also, student loans mean you start out life with debt. If you rely on student loans to pay for college, that means that you will start out your adult life in debt. Depending on how much you borrow, it could mean for a difficult first few years out of college, especially if, like millions of other college graduates, you’re having a hard time finding a job that pays enough money to allow you to live a decent life. Taking out fewer (or no) student loans could mean the difference between being able to live a comfortable life and struggling to make ends meet.
It’s almost impossible to get rid of student loans if you can’t pay. If you can’t afford to pay your mortgage, your credit card bills, your car loans, or your medical bills, it might seem like your world is coming to an end. But you’ve got one final emergency valve you can release in those situations which can allow you to dig your way out of debt: declaring bankruptcy.
Lastly, defaulting on your student loans can tank your credit score. Taking out more than you can expect to pay off after graduation, failing to make your monthly payments on time, and defaulting on your student loans can all have major negative consequences for your credit score. Defaulting is the worst of all outcomes, as it means that you’ve gone for more than 270 days without making a payment on your student loan. A bad credit score can follow you throughout your life, making you pay more for everything from credit cards to car loans to mortgages. It could even cost you your job.
What is Student Loan Forgiveness:
Student loan forgiveness is a way that you don’t have to repay federal student loans, in part or full, that have been borrowed for secondary education. Student loan forgiveness can be earned in two different ways: by working in public service or by making payments through an income-contingent payment for a long period of time.
In the U.S., before Joe Biden’s inauguration, his staff reiterated the president's support for the immediate cancellation of $10,000 of federal student loan debt per person as part of the Covid relief package. Biden said he supported the $10,000 in student loan forgiveness but is also under mounting pressure from members of his party, forgiveness advocates, and borrowers to go further by cancelling $50,000 per person. Critics of student loan forgiveness argue that this would not significantly stimulate the economy since college graduates tend to be higher earners who would likely redirect their monthly payments to savings rather than additionally spending. Others say it would be unfair to those who’ve already paid off their student debt or never took out a loan and would send the message that it is okay for people to ditch their debts.
Written by Anna Li