If you’re considering attending or have recently graduated from a post-secondary educational institution, you’re already familiar with the ins and outs of student debt.
While student debt is a worthy investment in your future, you’re not alone if you’re worried about it. In fact, debt was one of the main concerns many students have as they think about throughout college and university.
The average amount of student loan debt per person is about $31,000 for a four-year bachelor’s degree, not including graduate school debt.
However, student loans make college accessible to even students from low-income backgrounds, leveling the playing field and allowing them to establish themselves.
Before you start submitting college applications, it’s essential to understand the ins and outs of student debt.
Let’s take a closer look at what student debt is, what it covers, and some pros and cons of borrowing money for your education.
What Is Student Debt And How Does It Work?
Student debt is the amount of money students borrow to access educational opportunities. It can take several different forms:
- Subsidized and unsubsidized federal student loans
- Private student loans
- Direct PLUS loans
- Parent PLUS loans
Students can take out loans to fund their entire education or just enough to cover the difference left over after the school has applied financial aid and scholarships to their tuition and fee balance.
Typically, student loan payments start about six months after the borrower graduates. At this time, the entire loan amount is assigned to a loan servicer who will facilitate payments.
The monthly payment due depends on the amount of the loan balance, the interest rate, and the amount of time allowed for repayment, typically ten years.
At this time, you can choose the student loan repayment plan that’s right for you and your family. Students can choose from various payment plans to manage their student debt, including income-driven repayment plans and pay-as-you-earn plans.
Additionally, public servants can apply for student loan forgiveness if they qualify. Student loan borrowers who fall on hard times can also apply for deferment, meaning the loan servicer will pause their student loan payment for a specific time.
So what education expenses are covered by student debt? Let’s find out.
What Is Included In Student Debt?
Student debt is money meant to cover educational expenses for borrowers pursuing a higher education degree, like a bachelor’s degree or a master’s degree.
- Tuition and fees: This is the main expense that students are likely to accrue, and it can vary greatly depending on the school they attend and their program of study.
- Room and board: If students live on campus or in university housing, they may be required to pay for their room and board, which can add significantly to their overall cost.
- Textbooks and course materials: Course textbooks and other required materials can be quite expensive and can quickly add up over a semester or academic year.
- Transportation: Depending on the location of the school, students may need to pay for transportation to and from campus, which can include things like gas, parking, and public transport.
- Personal expenses: These can include food, clothing, entertainment, and other day-to-day expenses that students incur while in school.
- Interest on loans: Once a student begins borrowing money for college, they may accrue interest on those loans, increasing the overall debt they owe over time.
If you receive financial aid, you may get a refund check from your school for any loan money not used by the university for your educational costs.
While some students use this money to pay for food and other expenses, you can also refuse it to reduce your total student loan debt.
If you’re on the fence about whether or not you want to take any debt for school, let’s look at some pros and cons to help you decide. It’s important to note that every student’s situation is unique, so not all of the information we cover may apply to you.
Pros And Cons Of Taking On Student Debt
A college education is essential, but the cost of college is higher than it’s ever been.
Many prospective postsecondary students face the reality of carrying a debt load after graduation.
So should you depend on student loans to pay for your college education? Let’s examine some pros and cons of using student loans to pay for a college education.
Pro: Makes College More Affordable
Leveraging student loans makes college accessible to low-income students whose families may be unable to pay their tuition and expenses out of pocket. They can bridge any gaps left after the Pell grant and any other awards have been discounted from your account balance.
And since you don’t have to begin school debt repayment until six months after you graduate, or even until you get your first job, it gives undergraduate students the peace of mind that they can get on the career path of their dreams without having to make sacrifices.
Con: Start Your Career With Debt
Of course, having outstanding student loans means you’ll start your career with debt that needs to be repaid.
This means you’ll have a tighter budget, which can be a challenge if you are supporting a family or living in an area with a high cost of living.
Pro: Build Credit
Unlike carrying a balance on credit cards, lenders view student loan debt as “good debt,” meaning it will help you build up your credit score rather than count against you.
Both federal student loan debt and private student loan debt help you establish a payment history.