How to Decide if a Student Loan is Right for You

While going into debt is never a good idea if you have any other options – and it’s frequently a bad idea even if you think that you have no other alternatives – the fact of the matter remains that students are still going to take out student loans. Advisors, counselors and financial aid offices are still going to push that paperwork and the ensuing debt at you with a friendly smile and the assurance that it will give you so much more time to work on your school work. That internship (paid in credit hours) is still going to beckon you with promises of job-related experience, and those meals out instead of in the dining hall are still going to look oh-so-tasty. And, more practically speaking, the desire to take a full credit load, study your butt off and get out of school rather than going part time and working a fulltime job on top of it is always going to rear its extraordinarily practical head, reminding you that the sooner you’re out, the sooner you’ll be able to pay all this back.

In short, at some time in your college or post-graduate career, you will consider a student loan. Here’s how to make sure you make the right decision when that happens:

1. Evaluate your costs and your benefits.

There are times that taking out student loans makes sense. For example, if you want to be an accountant and already have a job lined up at a firm, then it may make sense to finish your education as quickly as possible. Make sure that your starting salary will support the minimum loan repayment, though, and that the benefits of starting fast (health insurance, steady high income, job security) are such that they compensate for the loan amount. Also, many firms will help you repay loans, so be sure to check into this. Do not take out the loan if the firm has not guaranteed you a job and a starting salary in writing, and do not factor in potential bonuses when you figure out what your starting salary will be.

2. Find out your repayment options before you sign.

Make sure that you can repay your loans early, and that you will be able to negotiate the minimum payment based on your ability to find a job. If you have to start repaying in 6 months regardless of whether you have found employment, then do not take out the loan unless that employment is already guaranteed in writing, and the salary is such that the loan can be repaid on time or early.

3. Lay out a sample budget based on the area of the country where you plan to live.

If you take out student loans to finance your journalism education, then move to New York City to work as a mailroom employee for the New York Times, you have made a bad decision. Your costs of living will far outpace your loans, and you will soon be in default. Furthermore, while hard work and dedication may earn you that penthouse office someday, you have no guarantees that the economy, the state of the nation or the demand for journalists will be such that you can repay your loans. Going into debt only makes sense if fast repayment and secure employment are a sure thing.

4. NEVER take out loans on EFES (Education for Education’s Sake).

The idea of following your passion is a valid one, and if you do so, you will find success. However, taking out thousands of dollars in student loans to get your PhD in Russian Medieval Haiku or similarly obscure topics that have little relevance in today’s job market and do not even exist at most academic institutions is not a sacrifice worth making for the good of your mind, it is a dumb move. Just don’t do it. This highly worthy sounding reason for extending your education indefinitely or taking out another year’s worth of tuition is, in fact, an extremely specious way to justify going into outrageous debt and putting off paying it indefinitely. Resist the urge, and if you must study Russian Medieval Haiku, do it on a part time basis so that you can succeed in your passion rather than ruining your credit score for it.

Before you take out a student loan, you simply need to make sure every base is covered. Look at things in an ultra-realistic light, and be pessimistic. While you should always hope and plan for the best, when it comes to your credit rating and the rest of your life, you should prepare yourself for all scenarios. Most often, you will find that student loan debt has far more negative scenarios than positive ones.