If you plan to go to college, you are likely going to take out some amount of student loans. For many individuals, the process of obtaining and owning these loans can be stressful and confusing, possibly a necessary evil to get a college education. However, this debt can be used for good purposes. If you are smart with your budget and educate yourself on what each loan entitles you to, you will be able to use your loans to better yourself.
One of the most obvious benefits of taking out student loans is that you now have the ability to get a college degree. The cost of a college education has been steadily increasing over the years to such an amount that even middle-class students find it impossible to pay out of pocket. Student loans can help bridge the gap between ability to pay and amount owed. If you are approved for a student loan, then you are one step closer to obtaining a college education. This can lead to a plethora of career and personal opportunities down the road. According to the Bureau of Labor Statistics, once you obtain a degree, you are also more likely to have a higher income than if you joined the workforce straight out of high school. Higher wages can possibly lead to a higher quality of life and a more financially secure future.
Another upside of taking out student loans is the potential to build credit. Having a credit history is very important in this day and age. Credit scores are used to calculate your creditworthiness and can impact whether you can get an apartment, your credit card terms, and even your employment opportunities. Through taking out student loans, a student can begin to build a solid foundation to their credit history by repaying the loans. Although most student loans are deferred, some private loans give you the opportunity to pay them off while still attending college. However, this option should be thought over carefully – if you do not have a stable income, you may miss a payment, which can harm your credit score significantly.
Finally, obtaining a responsible amount of student loans is a great way to build good money habits. College is a time in which individuals become more independent and responsible, not only for their studies but also for their life in general. If you do not have a meal plan or live off-campus, you must be able to budget an entire semester at a time to take out the appropriate amount of loans needed. When it is time to repay your loans, you will learn the importance of reliably and consistently paying them down. Self-control and discipline may also play a role in having student loans; for example, instead of spending your loan money on a daily coffee, you may instead opt to buy textbooks or other school supplies.
Obtaining and owning student loans can make anyone stressed, especially if the amount owed is very large. However, if you budget your money wisely, know your loan terms, and act with discipline and responsibility, you may come out of college a step ahead of the curve.
Written by Hannah Rose Budzynski, Financial Wellness for College Students Peer Educator, University of Illinois Extension, Fall 2020. Reviewed by Kathy Sweedler, University of Illinois Extension.