Figuring Out How to Pay for College? Why Should Student Loans Be the Last Resort

Most young adults are told by at least one family member or friend that pursuing a college education is the way to go—degrees lead to higher-paying jobs, the saying goes. Thus, students are flocking to colleges in droves, and few are lucky enough to have their full tuition paid for through scholarships or family help.

For those who opt for college instead of a trade school or another option, student loans are an enticing way to cover the cost of education. With over a trillion in student debt distributed among the students of America and wages stagnating, however, the student loan picture for those seeking higher education is relatively bleak.

For this reason, most students are better off avoiding student loans altogether if possible.

First, What's Wrong With Student Loans?

Student loans come with some inherent problems. They affect a borrower’s credit; those with a higher debt to income ratio may find borrowing for other things later much more challenging.

In fact, according to statistics, student debtors are less likely to buy a home early in life. They’re more likely to move back home with their families to avoid significant bills like rent alongside their student loan costs. Up to 34% of students with debt put off building a savings fund, and 29% delay saving for retirement. Even after paying off their loans, students who had loans were more wary to take on further debt, which discouraged them from buying houses and building their net worth.

The national default rate for student loans rests at 10.8% according to the US Department of Education, meaning that around 1 in 10 students see their loans default. This significantly impacts credit, making it nearly impossible to seek further funding—which includes for homes, cars, and even credit cards.

In addition, unsubsidized federal loans accumulate interest throughout school, so the amount owed at the end of your education will be more than what you originally borrowed. As if this weren’t enough, some private student loans require repayment during school, which can place a significant burden on students (and increase the likelihood of default).

What Are Your Alternatives?

One of the best alternatives to student loans is seeking a scholarship (or better yet, multiple). Unlike loans, scholarships do not have to be repaid. In addition, scholarships target certain niche opportunities that may be relevant to you and put you ahead of the pack in terms of application success. These niches might include your major, your personal history and achievements, or sometimes even your demographic statistics. You can look for scholarships throughout the year, so you will always have new opportunities to fund your education.

To see the most success when you apply for scholarships, begin strong. Make sure you’re sending the application to the right address, make sure it’s completed fully, and ensure that you are happy with the application packet. Think from the perspective of the judges to see if you’ve communicated everything. Remember that they are strangers, so it’s best to be clear and informative.

On top of scholarships, students have a number of other options for school funding that don’t rely on loans. Consider federal work-study programs, Pell grants, and other grants. These don’t require repayment either and are typically preferable to student loans.

Re-Thinking Financial Aid

Remember—you don’t have to rely on student loans to attend school. Given their issues and the rising cost of college, few students will do themselves any favors by taking out excessive student loan debt. There are multiple other solutions that can help students avoid being burdened with such debt so early in life.

You have the power to determine your own opportunities. College debt is a big issue, and education is important. How do you toe that line? Remember that if you work hard, you will have opportunities, and don’t rule out non-standard routes like trade school or getting an associate’s degree before transferring to a four-year school.

Not everyone can get full-ride scholarships, and sometimes college truly is too expensive, creating a funding gap that can be hard to bridge. You may indeed have to take out a student loan and deal with it. Just remember that scholarships, grants, and numerous other opportunities can help to avoid this to a large extent, reducing your debt significantly. And starting out your adult life with as little debt as possible is nothing but a positive thing.

By Andrew from LendEDU – a consumer education website. Andrew has been writing about financial aid for several years now, and he regrets not looking into scholarships or student loan alternatives.