Are there really pros and cons to student loans? So many borrowers put off major life milestones like buying a house, starting a family, getting married, and starting a business all because of the crushing weight of debt. Student debt is a burden our parents and grandparents didn’t have to face in the same way due to soaring tuition inflation.
While some borrowers genuinely have had their lives wrecked by student debt, after consulting with thousands of professionals over the past six years, I find that most student loan borrowers made a great decision to pursue their education.
Here’s how to decide if you made the right decision to pursue your degree.
Cons of student loans
Do you want the good news or the bad news first? I generally prefer the bad news, so the good news sounds even better. Here are a handful of disadvantages to student loans. But, make sure to read the pros because the cons are pretty heavy.
Every day, we get desperate emails from borrowers feeling crushed under the weight of their debt. I recognize the severe emotional strain student loans can have so I’ve also offered resources for anyone going through these challenges.
Suicidal ideation risk
First, I want to list the most significant disadvantage of student debt because it’s extremely serious.
Professionals with high student debt have higher rates of suicide and suicidal ideation than the population at large.
This is likely not all due to student debt, with professional burnout being a problem even among debt-free professionals.
However, our own study found that one in 14 borrowers had suicidal ideation from their student loan debt at one point.
If you or a loved one ever has thoughts of self-harm, contact 1-800-273-TALK (8255).
Higher risk of anxiety and depression
In another survey of thousands of our readers, nine out of 10 said that student debt made them anxious. Mental health is more discussed among Gen X and Gen Y generations. We struggle with anxiety for many reasons, not least among them a global pandemic.
However, student debt can cause depression and anxiety, aggravating feelings that are already there.
Over half of the readers in our audience said that they had felt depression due to their student loans.
If you or a friend are having trouble with mental health, contact one of the many online counseling services out there like BetterHelp or Talkspace.
Feeling like you can’t take risks
I speak to borrowers all the time who think they cannot start a business or leave their job due to crushing student loan debt.
If you have to make a $1,000 a month payment no matter what, it’s easy to see why people feel that way. You must earn a high income to afford a large payment like that.
However, thanks to income-driven repayment plans, taking a risk in your job and career overall is possible.
Even so, large debt can make people feel like they’re trapped in a cage with no key to get out.
Impact on relationships
In our survey on relationships and student loans, one in eight respondents said someone chose not to date them specifically because of the respondent’s debt.
Over half said their loans are a significant stressor on their marriage or romantic relationship.
One in three reported delaying kids due to student loans.
There’s an impact on friendships, too. As someone with student loans, you might feel like you cannot take part in the same social activities because of a tight budget to get out of debt as soon as possible.
One positive perspective of debt and relationships is that many couples I’ve counseled were drawn closer together from their debt payoff journey.
Overcoming student debt is a big obstacle, and once you’ve overcome that obstacle with your partner or spouse, you’ll be able to tackle other situations successfully, as well.
Delayed progress toward financial freedom
A plumber who starts working right out of a trade apprenticeship might start earning money very early on.
In contrast, many professional degree holders might not bring home their first real paycheck until their early 30s.
Your peers might be well ahead of you financially once your degree finally begins to pay off.
Although choosing the higher education path leads to a delayed start, it offers a faster rate of closing velocity toward financial freedom thanks to easier access to retirement accounts and higher incomes.
Pros of student loans
With a list of cons like the above, who needs to hear the pros of student loans?
That said, the average college-educated worker makes far more than the average non-college-educated worker.
A Georgetown University study found a direct relationship between higher levels of education of higher lifetime income. Consider the following median lifetime earnings by educational level below.
- High school only: $1.6 million.
- Bachelor’s: $2.8 million.
- Master’s: $3.2 million.
- Professional: $4.7 million.
Of course, a median statistic doesn’t tell the whole story. One-quarter of bachelor’s degree holders outearned approximately half of workers with a master’s degree and above.
Let’s look at a more holistic view of the pros of student loans.
When we cite higher income from a higher education, you might say, “well, what about the $100,000 of student debt I had to take out to get that income?”
That’s true, but most borrowers think about their student loans the wrong way.
Your student debt, at worst, is an income tax. That is, it’s a percent of your income (10% of your taxable earnings above 150% of the poverty line).
That usually works out to 6% to 9% of your actual pre-tax income after all deductions are taken into account.
If you work in the public sector, that “student loan income tax” lasts for 10 years. If you work in the private sector, it generally lasts for 20 years.
You’d need to save an additional 1% to 3% of your income in an investment account to pay taxes associated with student loan forgiveness (after 2025, student loan forgiveness under 20- and 25-year repayment plans is considered taxable income under current law).
That means the way to evaluate earnings is to take your income post-degree and subtract around 10% of it. The result is your net income as if you had zero student loan debt.
In most cases, this “net income” is far higher than if you had just pursued a high school education or only an undergraduate education.
Security from unemployment
Look at unemployment rates for master’s degree holders versus other education levels.
What you’ll find is that at the worst point of the 2020 shutdowns, the unemployment rate among this group of workers reached 6.7%. For workers overall, it was 15%.
Unemployment rates among master’s degree holders are around one-third of high school degree holders.
The same pattern holds true for other points of economic distress, such as the 2009 financial crisis.
Having greater job security during recessions means that as a person with higher education, you can invest and purchase assets when many in society cannot due to job insecurity. This leads to an even greater gap in wealth accumulation for workers with disparate levels of education.
Path to business ownership
If you have a high school education, opening a business is incredibly difficult. One straightforward business to open with limited educational attainment is restaurants.
How many restaurants survive at least five years? Only 20%. That’s an 80% failure rate.
What about dental practices? From the many bankers I’ve interacted with, I’ve been told the success rate is close to 99.7%.
Why? Barriers to entry and limited supply.
There are a finite number of dentists graduating every year. While that number has been increasing, you still must have a state license to practice. In many states, only a dentist can own a dental practice.
Additionally, the demand for professional services is more predictable than consumer discretionary categories like fine dining.
Business ownership may or may not be for you. Still, it can allow you to accelerate your wealth growth and achieve financial independence much faster because you build an asset that you can sell as a business owner that an employee cannot.
Access to professionals
Cost is a big reason more middle-class families fail to get professional financial advice.
Regulations significantly raise the cost of doing business as a financial planner (these costs are one reason I decided to start a financial coaching company instead).
When you have high fixed costs and limited time to spend with each client, a business will want to serve the clients with the highest revenue potential.
That’s why many middle-class families can’t find a fee-only fiduciary financial planner without an incentive to sell expensive financial products. What often happens is a working-class individual might get invited to coffee with a high school classmate who wants to sell them a complicated insurance product with high fees and high commissions.
That happens primarily because the ability of that client to pay (often cited as 1% of income) sometimes cannot purchase quality financial planning.
Professionals like physicians, dentists, veterinarians and lawyers do not have this problem. One percent to 2% of income for a professional like this is enough money to hire a competent financial planner, accountant, term life and disability insurance professional, etc.
More potential for job satisfaction
Maslow’s hierarchy of needs suggests self-actualization is the most important to humans. While some might disagree, we all want to feel like we have reached our full potential professionally or personally.
If you’re reading this, you’re a smart, self-aware person. You probably would feel more fulfilled if you could use all your knowledge and capacity without restriction.
That’s what education allows you to do in many ways. While some might be called to less skilled professions, having the highest level of authority in a career allows you the potential for more job satisfaction than if you had to always wonder “what if?”
Perhaps your professional degree didn’t come with significantly higher earnings. For example, if you’re a social worker, hopefully the work your education afforded you brings deeper meaning than pumping out projects at a corporate office park.
The pros of student loans usually outweigh the cons
Over 90% of our student loan borrower community has felt crushing anxiety due to their student loans. However, even though we have done thousands of student loan consults, we generally find that over 90% of borrowers no longer worry about what to do.
That’s because getting a plan for managing the negative impacts of student loans changes everything.
Just as a CPA can help you navigate a stressful tax problem, CFP® and CFA experts that perform 50+ weekly consults helps mitigate whatever negative emotions student loans make you feel.
That’s because of programs and strategies like income-driven repayment, refinancing, filing separately for taxes, applying for the PSLF waiver and more.
A glass-half-full perspective will help you live a happier life. With student debt came your ability to earn more money, more secure money, more meaningful money and a combination of the three.
For most, that makes the pros of student loans outweigh the cons.