You can qualify for federal student loans through the Free Application for Federal Student Aid (FAFSA) and receive different types of loans that have some of the lowest interest rates for students compared to private loans you can receive from the bank.
Are Student Loans Bad?
The sticker price for college has doubled since the 90s, after adjusting for inflation (this is different from the net price for college, which has been either flat or falling in some cases). Without financial or merit aid, the reality is that most students and their families simply can't afford higher education.
In sum, student loans aren't inherently bad and indeed may be a necessity. However, it's important to choose the right plan and amount of money, and then use it towards a degree with a higher ROI than your loan.
Federal student loans are the safest bet for borrowing money for college. They're built with protections like fixed interest rates, loan forgiveness, and payment pauses during hardship — uncommon in private student loans offered by banks or other financial institutions.
Generally, if you can borrow enough to pay for your education and still manage monthly payments so that you avoid compounding interest, while paying off your loans within the timeframe given, you'll be okay.
However, deciding to pause, reducing your course load to less than half-time, quitting school altogether, or not landing the job (and salary range) you were anticipating on graduation, can all make student loans much more difficult to manage.
Try to access as much free aid as you can, such as grants, scholarships, and work-study programs, to minimize the amount you'll have to borrow.
If you're pursuing a graduate or professional degree, you may need a student loan, since an average master's degree costs over $70,000, and graduate students aren't eligible for the federal Pell Grant. Instead, grad students rely more on fellowships, assistantships, and program grants for aid that doesn't have to be repaid.
We'll go over the pros and cons of loans to help you make a clear decision on whether or not you need them for your education and the best practices to go by if you do.
What Are the Pros and Cons of Student Loans?
Pros of Student Loans
They can make a college education more accessible. If you don't receive enough financial aid in your undergraduate package to cover your costs, student loans can cover the difference. Be mindful that as a graduate student, you don't qualify for grants like the Pell Grant, so you may rely more on loans.
Federal loans offer low, fixed interest rates. As of July 1, 2026, federal loans charge interest rates between 6.52% to 9.07%, depending on the loan you choose; these are generally lower than for private loans. While private loan interest rates depend on your creditworthiness, federal loan rates never depend on your score and are always the same.
Subsidized Federal Loans don't have to be repaid until you graduate. These types of loans, available to students with financial need enrolled at least half-time, do not accrue interest until a six-month grace period that begins upon graduation.
Federal loans can qualify for loan forgiveness. If you still have student loans after the different 20-, 25, or 30-year income-driven plans federal repayment plans, you may qualify for loan forgiveness. Borrowers working in public service and teaching can qualify for loan forgiveness through the Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness (TLF) programs. Public service workers can apply after 10 years of service, and highly qualified teachers can apply after 5 consecutive years of teaching.
Cons of Student Loans
The interest that accrues will increase the total cost of your loan. As with any other loan, you will have to pay back the money you borrow, including the interest that's accrued over your loan time. In essence, this makes the total cost of college higher than if you hadn't taken out any loans. Interest accrues daily, and must be repaid. You can find more details about how that happens here.
Monthly payments can limit the borrower's future budget. You need to meet the monthly minimum payments on your loan to avoid impacts to your credit score, building more interest compounding on your balance, and consequences through missed payments.
Your degree may not lead to enough income to justify the debt. Some degrees, especially master's degree programs that lead to licensure like social work, education, and mental health counseling, may not have a positive ROI on your loan since these programs typically lead to lower-salaried jobs, particularly at the beginning of your career.
Missing payments can damage your credit history. Your credit history and score signal your credibility when borrowing loans and your ability to pay them back. By missing payments, you lose credit score and the ability to borrow money for a house, a car, credit cards, and other loans.
Paying off your loan can remain a financial obligation for many years. Depending on the amount you borrow, the repayment plan you choose, and the amount you pay off per month, your loan can take about 10-20 years of repayments before qualifying for forgiveness.
Private student loans are riskier and have fewer safety nets. Most non-federal student loans don't have forgiveness options, payment pauses for hardship, or protections against fraudulent schools. According to a February 2026 analysis led by Sen. Elizabeth Warren, private loans made up over 40% of complaints to the Consumer Financial Protection Bureau (CFPB).
How To Decide If You Should Take Out A Student Loan
Here are a few questions to ask yourself before you take out a student loan, considering everything from how much you'll need, what you'll need to pay, and whether you actually need to borrow money for school.
How much do you actually need?
The amount you need will depend on how much financial aid you receive. You should always take out student loans after pursuing scholarships and grants through FAFSA, since you don't have to repay these — and in any case, you should fill out the FAFSA because it will help determine your financial need. If you do take out loans, you shouldn't take out more than the cost of education. We'll go over that in greater depth further down.
What would repayment look like?
The federal government offers two types of repayment plans: 4 that are income-driven and 4 that are fixed.
The fixed plans require that you pay a set monthly fee.
The income-driven plans take a percentage of your income, but the exact percentage can vary depending on your circumstances.
Be aware of the amount of money you owe each month and your balance. Plan to minimize the total amount you'll owe by setting a monthly budget that accrues the least amount of interest while still fitting your lifestyle.
Will your expected income be enough to manage the payments?
Your student loans should ideally be no more than your projected starting annual salary after graduation, according to the CFPB. Use CFPB's tool to see if you can manage your debt with your expected salary, and budget out the payments you'll need to make to see which income repayment plan works best for you.
Do you need this degree for the career you want?
Not all careers need degrees. The Bureau of Labor Statistics (BLS) Occupational Outlook Handbook lists dozens of careers, including salaries, projected growth outlook over the next decade or so, and entry-level education requirements. It's a great starting point to see what your chosen career may have in store and what you'll need to achieve it.
How confident are you that you'll finish the program?
Taking out a student loan without finishing your education can be detrimental to your long-term ability to repay it. If you can't earn the expected salary for someone with your bachelor's degree, paying back your loan will be much harder and will end up costing you much more than if you had finished your degree.
Federal vs Private Student Loans: Which Is Better?
You should always go for federal loans before private loans since they're built to serve the student and have lower interest rates, no credit requirement, and lots of flexible borrowing and repayment options, including forgiveness.
| Factor | Federal student loans | Private student loans |
|---|---|---|
| Interest rate (as of July 1, 2026) | 6.52% to 9.07% | Interest rates tied to credit score, better score usually leads to better rates |
| Credit check | No | Yes |
| Repayment options |
|
These rates are lower at the beginning of your borrowing. However, your lender can increase these at any time. Federal student loans will never adjust your interest rates from the year of first disbursement. |
| Forgiveness eligibility | Income-Driven Repayment Plans: Remaining balance may be forgiven after 20, 25, or 30 years, depending on the plan you choose. | None |
| Borrowing limits (as of July 1, 2026) | Undergraduate Dependent:
| Depending on the lender, research or ask your prospective lender what the loan limit is. |
| Cosigner | No | A cosigner is also liable for the loan but can help you get a better interest rate if their credit score is better and they have a longer credit history. |
How Much Student Loan Debt Is Too Much?
What is considered "too much debt" really depends on the individual, the school, and the career you decide to pursue. Generally, the CBPF recommends that you only borrow what your future starting salary can pay.
For example, bachelor's in business graduates in 2024 earned an average starting salary of $68,644, so you would:
Not want to take out more than the cost of your education*
Not take out more than around $68,000 in loans for your education
*While federal loans won't allow you to take out more than the cost of your degree, you can use private loans to borrow more money
You can also have too much monthly debt from other sources to make timely payments, so choose an income repayment plan that allows you to make payments without straining your budget or causing you to miss payments. By opting for federal student loans, you have a variety to choose from that best fits your budget, whether that's payments based on a percentage of your income or fixed amounts to pay each month.
Your educational return on investment should be positive, but that's not always the case with high-need, low-paying careers, such as teaching and social work.
If you want an in-depth student loan budgeting tool, the CFBP has a calculator you can utilize to estimate your cost of college and how much you'll owe in student loans.
Frequently Asked Questions About Student Loans
Yes, you can refinance your student loans, both if they're federal or private. Refinancing a loan means consolidating all your current loans into one new loan. Some benefits include choosing a new interest rate and rate type, simplifying your payments, and selecting a new repayment plan.
