The Pros And Cons Of Student Loans

When going to college, taking out student loans may seem like a good idea, but can have negative consequences. Loans come with interest, which is the fee for the privilege of borrowing money, and is typically expressed as an annual percentage rate. For example, if you take out a loan of $5,000 to help pay for a new car, the bank can charge you interest. Let’s say that the annual interest rate is 3%, and it takes you 4 years to pay it off. Because of the accumulated 3% interest, you would owe the bank $150 more each year and your loan ends up costing $5,600. The bigger the loan is, the more interest rates affect it.

There are many different kinds of loans one can use. We are going to be using the example of the unsubsidized Federal Stafford loan, which is low interest and was created precisely for college students. Unsubsidized means that the borrower will have to pay all interest that is accumulated, unlike subsidized loans where the government pays your interest. Unsubsidized loans make a big difference with your accumulated interest.

Say there are four students on their way to college: Artie, Beth, Carter, and Danna. All are working towards becoming dental hygienists. Each graduated with an overall Grade Point Average of 3.5 or higher, and needs to find a summer job. Artie and Beth work as tutors and charge $15 per hour, and work ten hours a week until the next college term starts, accumulating about $9,450 savings towards tuition. All students live at home for the duration of their college careers, so there are no out-of-state charges. All loans that may be taken out have a 5% interest rate.

Artie graduated from high school with good grades and starts his summer job. Artie charges $15 an hour, and tutors 10 hours a week wi...

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...llege career. Each year at Pacific costs $37,024, adding up to $148,096 for four years. Danna also has to take out student loans, which have a 5% interest rate. At the end of her college career, Danna gets a job as a dental hygienist that pays $78,160 annually. Her loans accumulated interest over the four years, totaling $155,500.8. With monthly payments of $730, it still takes Danna almost 44 years to pay off her debts.

As you can see, taking out student loans can be detrimental to your finances and stress levels. Having a job and/or saving up before hand can help quite a bit with paying for college, as you saw in Artie’s and Beth’s cases. In Beth’s case, I would say that taking out student loans is ok, but still highly un-recommended. It doesn’t matter how old you are when you go into college – if you’re saving up to avoid debt, I say it’s often worth the wait.