Access to Education: Student loans can provide the necessary funding to attend college, which can lead to better job opportunities and higher earning potential. Investment in Future Earnings: Many college graduates earn significantly more over their lifetimes compared to those without a degree.
In fact, many financial aid experts recommend that you only accept what you really need. While accepting scholarships and grants is often harmless, you should be careful about how much you accept in student loans.
The Bottom Line. Large amounts of student loan debt can reduce economic activity in a consumer economy in many ways. For individuals, it can strain your personal budget, which can result in you spending less. As part of a larger trend, this would lead to less spending, which is a major factor in economic growth.
Approximately half of student loan debt holders say their debt has impacted their life choices. One third say it has impacted their ability to continue their education (33%) while 14% say it has impacted their decision to start a family.
Deciding to pay off your student loans early can have benefits, depending on your situation and financial goals. Interest savings: Interest is money you pay for the privilege of borrowing money. The longer you have debt, the more money you pay—money that you could've saved for your financial goals.
Student loans can be another example of “good debt.” Some student loans have lower interest rates compared to other loan types, and the interest may also be tax-deductible. You're financing an education, which can lead to career opportunities and potentially increasing income.
Federal student aid from the Department of Education covers such expenses as tuition and fees, housing and food, books and supplies, and transportation. Aid can also help pay for other related expenses, such as a computer and dependent care.
Free to use the funds for any purpose: One of the biggest advantages of Personal Loans is that you can use your funds for any purpose you like – be it a wedding, a holiday, a gadget, business investment, home renovation etc. A Home Loan or a Car Loan must be used for the purpose that you borrow it.
Most people will borrow money at some point in their lives, thus making lending a vital part of finance and the economy. Borrowing often supports consumption, the largest component of gross domestic product, or GDP, a popular measure of economic activity.
A major pro is that you might gain relevant experience that helps you land a job after graduation. However, there are some potential drawbacks to consider — for example, most work-study jobs pay minimum wage. To see if you're eligible for this program, complete the FAFSA if you haven't already done so.
The interest rate is fixed and is often lower than private loans—and much lower than some credit card interest rates. View the current interest rates on federal student loans. The interest rate is fixed and may be lower than private loans—and much lower than some credit card interest rates.
That lower net worth can also make it harder for households to weather economic downturns. For example, households holding student debt during the Great Recession experienced a larger decline in their net worth (a 12 percent drop) over that period than those who did not hold any student debt (9 percent drop).
Good debt is money you borrow for something that has the potential to increase in value or expand your potential income. For example, a mortgage may help you buy a home that can appreciate in value. Student loans may increase your future income by helping you get the job you've wanted.
Key Takeaways
If you have too much student loan debt, you won't be able to save as much for retirement. Student loan debt can lower your credit score, especially if you fail to make on-time payments. Student debts may be forgiven under certain circumstances, but almost never if they are in default.
Many financial “experts” say you should always pay with cash when possible. They apply this rule to all debts, including credit cards, auto loans, home loans, and yes, student loans.
Making all of your student loan payments on time can help raise your credit score. As you pay off your loan, you lower your total debt, which can also improve your credit. Conversely, making late payments on your student loans will likely damage your credit score.
Student loans can be used to pay for college costs, including living expenses. Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website.
If you are delinquent on your student loan payment for 90 days or more, your loan servicer will report the delinquency to the national credit bureaus, which can negatively impact your credit rating. If you continue to be delinquent, you risk your loan going into default.