Is it Worth It to Take Out a Student Loan?

Each year, thousands of prospective college students complete the Free Application Federal Student Aid (FAFSA) or an application for state financial aid for undocumented students, such as the California Dream Act Online Application. Their highest hope is to be able to get enough in federal and state financial aid to pay for their desired college. However, there are various reasons why a student may not be eligible for only scholarships, work study or grants. So, students often ask themselves an extremely important question: Should I take out a student loan?

As a millennial with student loan debt from graduate school, I understand the hesitation from many prospective graduate students to avoid taking out loans or to even pass up on your dream school because the price tag seems insurmountable. However, I always tell students that a loan taken out for your college education is the best loan since no one can ever take your college education away from you. Unlike taking out a loan for a car or another item, your college degree is a lifelong possession. 

So what are the different types of loans that students can borrow?

• Direct Subsidized Loans: For undergraduate students who show that they have a financial need and can be used at a college or career school

 

• Direct Unsubsidized Loans: For undergraduate, graduate, or professional students and not based on financial need

 

• Direct Plus Loans: For graduate and professional students, or parents of undergraduate student. Eligibility is not based on financial need and a credit card is required. If a borrower doesn’t have the best credit, they must meet other requirements. 

 

• Direct Consolidation Loans: Allows students to combine all eligible federal financial aid into one loan servicer. 

 

• Private Loans: Allows students to borrow from private organizations, such as banks, credit-unions, state based or state-affiliated organizations. These lenders have various eligibility requirements that borrowers must follow

If I decide to take out a loan, what can I do to help myself to limit my debt?

• Be wise with the amount of money that you’re borrowing: While in school, be strategic on how you decide to spend your student loan funds. If you think a purchase will put you in too much debt, think twice before spending student loan money on it because it will need to be eventually paid back. 

 

• Save money while in school: It's a wise idea to put money aside to save while you’re in school so you can pay back your loan faster. When I was in graduate school, I opened up a bank account with another bank that just housed my student loan funds.

 

• Pay back student loan debt with remaining student loan funds: While in graduate school, I made sure to not use all of my student loan money. So, for the first year I had to pay money back, I used my leftover funds to pay down the balance. This helped me to save on time before I had to start paying out of my own paycheck. 

 

• Get on an income-based repayment plan: If you are not able to pay the standard rate, consider getting on an income-based repayment plan. It may take you longer to pay down your debt but it makes it more manageable while you’re trying to build your life. 

 

• Fill out the Public Service Loan Forgiveness Program Application: If you work in the public sector, fill out a Public Service Loan Forgiveness Application. Recent legislation has passed that has made more borrowers eligible for this funding. 

As you can see, there are many options to consider when thinking about taking out a student loan. If you're strategic, you find creative ways to reduce your amount of student loan debt. Always remember that it is a huge responsibility but worth it to invest in your education.

Source: Federal Student Aid, https://studentaid.gov/understand-aid/types/loans