Student loans pros and cons | 05.26.09
Mary on Twitter asked:
Working on post about pros and cons of getting student loans. Your thoughts? Any links? Thanks!
Here’s a brief list.
Student loan pros
- Student loans allow you to afford colleges that you couldn’t pay cash out of pocket to attend
- Student loans, especially Stafford and PLUS federal loans, have fixed interest rates that, while not always the lowest, are predictable and easy to budget for
- The Stafford loan requires no creditworthiness, only eligibility based on the FAFSA, making it ideal for tough economic times
- PLUS loans and private student loans require creditworthiness but no demonstration of need, making them suitable for families that are too well off to qualify for need based aid but not well off enough to simply cut a check to the college
- Student loans, especially federal student loans, have a variety of flexible repayment options, including payments that scale with your income, along with deferment, forbearance, and consolidation
Student loan cons
- Student loans are largely non-dischargeable, even in bankruptcy, which means you’re stuck with them forever
- Student loans, especially federal student loans, can be collected via wage garnishment and a variety of other mechanisms that other loans can’t be, such as seizure of income tax refunds
- Student loans may not be the lowest cost of borrowing if you’re able to obtain good terms on other consumer loans like home equity loans
- Student loans can be far too easy to overborrow, especially for students who don’t have strong personal finance skills, graduating with massive amounts of debt in a few short years
- Student loans are convenient, which means that students may not pursue lower cost options for college such as aggressive scholarship searching or lower cost colleges
Ultimately, whether or not you borrow a student loan is a function of time. If you plan far ahead, if your parents plan far ahead, the chances are good you can attend college for very little money borrowed or no money borrowed. Students who have used our free college scholarship search eBook, Scholarship Search Secrets, have brought in tens of thousands of dollars each in scholarships, greatly reducing the cost of college. On the other hand, students who need funding as soon as possible find some success with our private student loans, at the cost of incurring debt that they’ll need to repay over the years ahead.
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