Student Loans: A Financial Analysis

A financially secure future is something most people think about. A college education can be one way to achieve financial success, but for many prospective students the thought of being buried in student loans can be frightening. Deciding how much debt is too much, what major to pursue, and if an education is going to be worth it can be difficult questions to answer. However, the financial implications of large student loans do not diminish the value of an education over the lifetime of a student if careful consideration is given to minimizing debt and the choice of major.
A higher education adds value by having a significant positive impact on the on the future earnings of a student. Being financially successful is a goal in most people’s …show more content…
“To produce college success, it is better to combine loans with other tools, such as grants, scholarships, and savings” (Elliot). Unfortunately, many prospective students are not receiving the information necessary to make sound financial decisions regarding loans. McKinney et al. say that the number of borrowers who had heard nothing about loans before enrolling in college is particularly troublesome and that parents and high schools are just not dependable sources of information. Before students enter college, they may lack information about their ability to succeed or the financial aspects of college (Oreopoulos and Uros). Understanding all available funding options is one key to keeping student loan debt manageable. Students should start attending financial aid workshops in high school and meet one-on-one with financial counselors to discuss the implications and benefits of loans, scholarships and grants, according to McKinney et al. Taking out a loan should improve a student’s long-term financial well-being not exacerbate future financial …show more content…
Students tend to underestimate the total costs of borrowing and overestimate the amount they will earn, according to McKinney et al. Accurately predicating future earnings and keeping unnecessary spending to a minimum can help keep loan balances as low as possible. Many students are under the misconception that they will have no trouble repaying loans and use advances to pay for day to day necessities unaware that the balance skyrockets with every semester (McKinney et al.). “There is a significant disconnect between the high debt levels many borrowers were willing to assume and the average labor market returns in their chosen field of study” (McKinney et al.). By calculating the total loan amount including interest and comparing it to prospective earnings a student can compute the return on a college investment and determine the appropriate amount of debt, according to Oreopoulos and Uros. Proper research in labor market demands and future earnings is a crucial step to avoid over borrowing for unnecessary