Navigating Student Loans: A Guide for 2022

The decision to take out student loans is a complex one, influenced by your chosen major, financial stability, and long-term career goals. This guide aims to help you make an informed decision in 2022 by providing a detailed analysis of the benefits and drawbacks.

When is a Student Loan a Good Idea?

While taking out a student loan is not always a bad idea, the decision should be carefully considered. It is frequently a viable option, especially if your chosen major will lead to career advancement and financial success. However, one should also consider the degree's potential for inner satisfaction and whether it aligns with your career aspirations.

Before deciding, ask yourself:

Will the degree advance your career goals? Will it provide inner satisfaction and allow you to pursue a favored career?

If the answer is no to both questions, consider other life options. A generic college degree is no longer considered a guarantee to life success, and it's important not to saddle yourself with a degree that doesn't offer both personal and financial rewards.

When is Getting into Debt a Bad Idea?

Getting into debt for an education is often more nuanced than simply being good or bad. Sometimes, it is unavoidable, especially in today’s economy where high tuition fees and limited entry-level job prospects are common. However, even when unavoidable, it is crucial to minimize the debt as much as possible.

Here are some steps you can take to reduce your financial burden:

Work while going to school to earn extra income. Apply for scholarships and grants to cover some costs. Attend a cheaper school if possible. Live at home to reduce living expenses. Buy used books and get supplies on the cheap.

Key Considerations for Taking Out Student Loans

Before taking out a student loan, consider the following key points:

Have you graduated in the top 20% of your high school class? If not, your odds of completing the degree are too low, and student loans are highly indispensible. Unlike other debts, student loans cannot be discharged in bankruptcy and are as permanent as taxes owed. Do you know exactly what degree you wish to acquire? Clearing this question is essential before committing to long-term debt. Do you understand the potential return on investment (ROI) of your degree? This information is available from the Department of Labor and can also be found in books like Worthless by Aaron Clearly.

Consider whether the ROI is higher than the interest rate and the opportunity cost of foregone income and career advancement. This latter aspect, the opportunity cost of time, is a significant reason why skilled labor can often be more financially rewarding than a generic college degree.

Thus, if any of these questions are answered with a 'no,' a student loan may not be in your best interest, regardless of how low or deferrable the interest rates may be.

Remember, the decision to take out a student loan is crucial and can have long-lasting effects on your financial health. It's important to weigh the pros and cons carefully and make an informed decision.