Are Loans Really That Bad? The Pros and Cons of Student Loans

Student loans get a bad rap, but they're a reality. Learn more about the pros, the cons, and how student loans can expand access to higher ed.

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by James Mielke

Published on February 10, 2022 · Updated on February 11, 2022

Reviewed by R.J. Weiss

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Are Loans Really That Bad? The Pros and Cons of Student Loans


College is expensive. When combining tuition, fees, books, and housing, students can easily pay tens of thousands of dollars each year to fund their education. As a result, 65% of students graduate with student debt.

Skeptics of student loans question the value of taking on debt to fund a college degree. But the reality is that many individuals rely on loans to pay for school.

We take a look at the pros and cons of student loans, offer some tips to offset the need for loans, and clear up some common questions students have. Learn more about college loans and how they can expand your access to higher education.

Are Student Loans a Good Idea? A Bad Idea?

Until tuition rates fall and financial aid opportunities dramatically expand, student loans will remain a reality — for better or worse.

Some individuals may question the value of incurring debt for higher education. However, there's no clearer path toward expanded career options and earning potential than a college degree.

As tuition rates rise, student loans dramatically expand higher education access to those who may not be able to afford it otherwise. So borrowing responsibly is vital.

Skeptics see loans as financially risky. But when combined with various financial aid options like scholarships and work-study programs, a loan can be an investment in your future.

Are Certain Student Loans Better Than Others?

When considering loan options to pay for school, the first place to start is federal loans.

The interest rates on federal loans are fixed and relatively low. But because federal loans do not exceed $12,500 per year for undergraduates, degree-seekers may need to find other loan options.

If a federal loan doesn't meet all of a recipient's financial needs, private loans are a common option.

Unlike federal loans and their relatively generous repayment options, private loans may not offer repayment plans that consider income or financial hardship.

The Biggest Pros and Cons of Student Loans

Just because the majority of students take on debt during college doesn't mean that it's the best financial decision for everyone. Before taking on the serious responsibility of student loans, assess your financial situation and consider the pros and cons of student loans.

Pros of Student Loans

Cons of Student Loans

Should You Borrow With Student Loans?

The decision to take on debt to pay for college is a personal one. It relies on careful consideration of various factors. And while earning a college degree is a traditional path many people take before beginning a career, students should consider some essential factors before taking on a loan.

Students should assess their financial need, the total cost of attendance, post-graduation career prospects, and earning potential. Reaching out to your school's financial aid office can also help when exploring various financial aid opportunities and ways to cut costs.

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4 Tips to Avoid Student Loans

Even though most students graduate with debt, there are ways to reduce or eliminate the need for loans. Here are some common ways students can cut costs and secure funding.

1. Apply for Scholarships and Grants

While loans are a common financial option for many students, scholarships and grants can dramatically reduce the financial burden of tuition and associated fees.

As opposed to student loans that can result in decades-long repayment plans, scholarships and grants traditionally act as free money with minimal strings attached. They typically don't need to be repaid as long as you meet certain requirements.

Scholarships and grants come from various public and private sources and often prioritize top-performing students or those who demonstrate financial need.

2. Attend a Less Expensive College or University

When choosing a college or university, financial concerns often play a significant role in whether or not a student enrolls.

For those concerned about post-college loan repayments, selecting an institution that offers quality academics at a manageable cost could be the practical choice. That said, sometimes tuition rates fail to tell the whole financial story. Many schools offer generous financial aid packages.

3. Use a Tuition Payment Plan

Rather than paying in one lump sum, tuition payment plans spread tuition fees into installments — traditionally over the course of a year.

Depending on a student's specific financial situation, a tuition payment plan can reduce or remove the need for loans. Reach out to your school's financial aid office to find out about their policies involving tuition payment plans.

4. Graduate On Time or Early

While graduating on time or early may not prevent the need for student loans, finishing your degree in a timely fashion may dramatically reduce the amount of money borrowed.

In short, more time in school can mean more loans. To graduate early, students often earn college credit in high school, take summer and/or winter courses, and maintain a full academic schedule.

Frequently Asked Questions About Student Loans

What's the difference between financial aid and student loans?

The primary distinguishing factor between financial aid and student loans is whether or not the student needs to repay money received.

With financial aid such as scholarships and grants, recipients traditionally do not need to repay the funds received. Conversely, student loans require recipients to repay the money, with interest.

Considering that the majority of students graduate with student loan debt, financial aid opportunities like scholarships and grants can play a significant role in reducing the amount of debt that recipients must repay. Scholarships and grants come from various public and private sources -- with sums both small and large.

What is interest on a loan?

In simple terms, interest refers to the fees that accompany a loan. When making monthly payments on a loan, the borrower's payment covers two areas: interest and principal. The principal is the amount of money borrowed, while interest is determined by an annual percentage rate (APR).

When considering student loan options, borrowers should take into account various essential factors. These include loan interest rates, loan eligibility requirements, and the reputation of lenders. Additionally, students should consider repayment plans and make an honest assessment about their earning potential upon graduation.

How long does it take to pay off student loans?

For individuals graduating with federal student loans, they enroll in the 10-year Standard Repayment Plan. Graduates needing a bit more flexibility can extend these payments over 30 years. Other repayment options include a graduated repayment plan that increases payments every couple years.

Additionally, students have access to income-based repayment plans where loan recipients dedicate a portion of their income over a set period of time. Those receiving a private loan can typically anticipate repayment plan options lasting from 5-20 years. When applicable, students can also refinance private loans to receive more favorable interest rates.

Prepayment penalties are forbidden with both federal and private loans. As such, at any time, you can make additional principal payments, which will help you repay the loan ahead of schedule.

What is a grace period?

For student loans, a grace period refers to the amount of time between graduation and when their loan repayment plan begins. While the length of this grace period can vary slightly depending on the type of loan, most loan servicers offer a grace period of six months. Students can review their loan documents and promissory note to verify any questions regarding a grace period.

Students should know that for many loans, interest begins to accrue during the grace period. To avoid adding to their balance, students can pay off the interest that accrues during their six-month grace period.

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