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Student Loans: An Overview

Updated: Jan 3

Participation in higher education has been on the rise, showcasing the increased value placed on college degrees. In the late 1980s and early 1990s, college enrollment was less common among high school graduates, and most of them did not rely on student loans. Fast forward to 2022, and we see a significant shift, with almost two-thirds of recent high school graduates pursuing higher education, many of them using student loans as a financial aid tool.

As of May 2022, approximately half of the total outstanding student debt was attributed to individuals who pursued education at two- or four-year colleges or universities, with the remaining portion originating from graduate school borrowers, as reported by the Washington Post. While most students manage to graduate with student loan balances under $20,000, there's a notable subset of borrowers who carry a significant share of the overall student debt burden. Surprisingly, more than a third of the entire debt is held by a mere 7 percent of borrowers, who owe upwards of $100,000 or more.

Furthermore, students today are shouldering more debt, with the average balance per borrower increasing by 25 percent from 2009 to 2021, as reported by U.S. News and World Report. This trend can be attributed to the fact that college tuition costs have outpaced income growth. It's essential to note that while college costs and student debt have escalated in the United States, in many other affluent countries, higher education is often free or substantially subsidized.

This changing landscape in education highlights the importance of understanding the financial aspects of attending college and exploring options to make higher education more accessible and affordable.

Earning a bachelor's degree can open a world of opportunities and significantly increase your lifetime earnings. Research indicates that individuals with a bachelor's degree can earn well over $1 million more than those with just a high school diploma. According to a 2021 study by Georgetown University's Center on Education and the Workforce, the median worker with a bachelor's degree can expect to earn approximately $2.8 million in their lifetime. This is around $1.2 million more than someone with only a high school diploma and $800,000 more than someone with an associate's degree.

To put this into perspective, the cost of a four-year college degree at a public university typically amounts to a little over $100,000, including room and board. Even for out-of-state and private institutions, the cost remains manageable at about $176,000 to $218,000. Considering the increased lifetime earnings, this investment in education can result in a net gain of over $1 million.

For those who pursued graduate or professional degrees, the higher initial debt can lead to substantially higher incomes in the long run, making it more manageable to pay off. On the other hand, students who do not complete their degrees tend to encounter the greatest difficulties, with default rates three times higher than those who successfully graduate.

The choice of educational institution plays a significant role in determining the level of debt incurred. Graduates from private schools, especially those who attended for-profit institutions, typically carry larger debt burdens compared to their counterparts from public schools. This highlights the importance of considering various factors when making educational choices and seeking strategies to make higher education more accessible and manageable for everyone.

Choosing a marketable field of study can further enhance your financial prospects. Earnings after graduation vary depending on your chosen career path, with starting salaries varying based on the field, job location, and company size. For example, fields like computer science and engineering offer attractive starting salaries, and these figures can increase with bonuses and incentives. You can research salary data on platforms like Glassdoor and the Bureau of Labor Statistics to get a better understanding of your potential earnings.

Managing your student loan debt is another important aspect. There are flexible repayment plans available for federal loans that take your income into account, making monthly payments manageable. It's essential to be cautious about how much you borrow and explore lower interest rates for private loans, while also considering the benefits of working before pursuing a master's degree.

While it's important to be cautious about student loan debt and consider scholarships, grants, and work-study programs, it's essential to remember that completing your degree is crucial to reaping the benefits. Dropping out of college will still leave you responsible for repaying your loans. Before deciding if student loans are the right path for you consider ways to make college more affordable:

  • Save money during a gap year

  • Boost your credit score for better interest rates on private loans

  • Complete core courses at a community college

  • Choose in-state schools

  • Explore non-loan schools

  • Live off-campus with roommates or family

  • Seek employee assistance programs and scholarships

When making significant financial decisions, it's crucial to consider the potential benefits and drawbacks, as well as the likely outcomes. Take the time to understand what aligns with your comfort level and what you can realistically handle. Building a relationship with a financial advisor sooner rather than later is a proactive step, as they can be an invaluable resource in guiding you through financial choices, particularly those that will have a lasting and positive impact on your financial well-being!


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