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Are Student Loans Worth It?

(Get What You Pay For)

There’s little doubt that going to college improves your salary outlook. College graduates earn $1 million more than those with only a high school degree throughout their careers, and the earnings difference between the highest- and lowest-paying majors is $3.4 million, according to a recent report out of Georgetown University.

But not all programs deliver the same results. Where you go to school and your debt burden make all the difference in whether or not you graduate on time. Higher education is an investment, and like all investments, it carries risk. You won’t know if it was worth it until after graduation, when you either get a job that lets you comfortably repay your loans — or you don’t.


Nearly 20% of students (1 in 5) apply to 9 or more schools, but only 8% get into all of them, according to a survey of incoming freshmen in 2017. Most students apply to 4, visit 3 and get accepted to 3 schools. But despite all the effort, high tuition causes about 60% of undergrads to choose a school within 100 miles of home.

It’s important to consider other factors beyond location, including:

  • The college or university’s graduation rate
  • How much financial aid you are offered
  • Cost of living around the school (food, rent, transportation)
  • Average salaries of recent graduates in your program
  • Flexible learning environments (online, night classes)
  • Programs to help students like you graduate on time

Instead of worrying too much about whether or not the school wants you, research the school’s performance. How well does the institution support students like you to complete degrees on time and get jobs after graduation? This is a much better indicator of the overall value of the education you would receive for the money.


Students often choose schools for the wrong reasons. If the main selling point is that you like their colors or they have a good football team, you might be disappointed to find that the school doesn’t deliver value for your investment.

Four-year colleges and universities often are compared based on the percentage of incoming freshmen who earn bachelor’s degrees within 6 years. Critics argue that the 6-year graduation rate is incomplete because it doesn’t track part-time or transfer students, or those who enroll mid-year. According to the American Council on Education, these rates might leave out more than 60% of students.

But, for now, graduation rates are one of the best measures we have to compare schools. Particularly if you come from a lower socioeconomic background or if you are African American or Latino, it is crucial to look at the school’s graduation rates for various sectors of the student population. Some schools have great overall rates, but much lower rates for nontraditional and minority students.

The most recent data show the 6-year graduation rate for all first-time undergrads at 4-year institutions seeking bachelor’s degrees hovers around 60%. That means 40% of undergrad students do not graduate within 6 years. You can imagine how much harder it is to pay back student loan debt if you don’t have the degree — or the job it was supposed to help you get.

For a long time, students were blamed for these poor graduation rates, but recently, attention has shifted to the schools themselves. Research out of Harvard University tracked students of similar academic levels in Massachusetts and found that the resources an institution commits per student make a huge difference.

Not surprisingly, schools that are harder to get into have higher graduation rates. Often schools that are not very selective don’t provide the per-student resources to help students succeed. Then the students are blamed, when actually they were lured by the promise of a brighter future, often taking on debt they couldn’t afford for an education that didn’t deliver.

Private colleges and universities tend to have better graduation rates, but also significantly higher costs. In-state tuition and fees at public institutions range from $8,000 to $10,000 per year, while the average price tag for private schools is $29,000 to $42,000.

Young man with this skate board hanging out and thinking about his student loans.


Student loan debt is contradictory — it is both a resource and a liability, a provider of opportunity and limitations — according to research out of The Ohio State University. For students from lower socioeconomic backgrounds, taking out student loans might be the only way to afford higher education. However, these students also are more likely to face other factors, such as:

  • Borrowing large amounts to attend big public institutions that don’t provide enough personal attention for them to succeed
  • Taking out more debt than needed to cover non-school expenses, such as filling household income gaps, covering family emergencies or paying off other debts
  • Taking out large amounts of unsubsidized loans that accrue interest while students are enrolled in school, or private loans with high interest rates and unreasonable repayment terms

First-generation college students are especially vulnerable because they often lack guidance. They take on large amounts of debt early in college, before they understand how expensive repayment will be and only realize later — when they can see their real career and earnings outlook — that they have borrowed more than they can repay.

Fearful of debt, these students are more likely to drop out before earning their degrees. Unfortunately, more and more people are defaulting on their loans, whether they finish school or not.


Critics say that luring people who can’t afford it to take out more loans than necessary for degrees that don’t fund repayment is similar to giving mortgages to subprime borrowers — one of the factors that led to the housing bubble and Great Recession of 2009.

For schools to deliver quality degrees in 6 years to all students requires innovative programming, more guidance, coaching, upfront financial planning and student advocacy. It’s unlikely that schools will lower their tuition because they don’t want to appear cheap. They want to seem high quality, and they think that means high cost.

But students do have choices. Before you take out student loans, research graduation rates and the earnings outlook for your desired profession. And think long and hard before leaving school without your degree.

As always, we’ve got your back. — The On Your Own Team End of article insignia

[Any reference to a specific company, commercial product, process or service does not constitute or imply an endorsement or recommendation by On Your Own, the National Endowment for Financial Education or any of its affiliate programs.]