How to Decide if Student Loans are a Good Idea

Getting an education after high school should have a huge positive impact on your life. It should give you the tools you need to go on and build a successful life for yourself.

Taking on too much student debt is like a cancer that can quickly grow out of control and ruin your life. To avoid it, learn how to decide where to go to school, what to study, and how to pay for it.


Not Much “Award” in Your FAFSA Award Letter

FAFSA season is in full swing. The Free Application for Federal Student Aid (FAFSA) has been available since October 1, and students who sent in their application early should be getting their “Award” Letters from their selected schools sometime soon.

I put “Award” in quotes because for many students the only “Award” they will receive is the ability to take out student loans.


Congratulations! You can now pre-spend your Future Income on an education that may not increase your Future Income! Yay!

– Every “Award” Letter Ever

Ugh… that’s not much of a prize. If that was the award for winning a race, I’d stay home.


In a perfect world, every student would be able to pay for college with a combination of grants, scholarships, and cash. But, the reality is that for many students, the only way to get an education is with some form of student loans.

However, just because student loans are sometimes necessary, does not mean you get to throw logic and good sense out the window.

There are a few times in your life that it is incredibly important to exercise good sense and caution. Deciding where to go to school, what to study, and how to pay for it is one of those times. If you spend too much on college, it will follow you around for the rest of your life.

How to decide where to go, what to study, and how to pay for it

Education is just like any other good or service. Just like toilet paper, you can shop, compare, and decide what kind you want and how you want to pay for it.

You could go bargain-basement shopping and find some one-ply paper that is more like sandpaper than tissue. That might save you a bit of cash, but the results could leave you with regrets.

Or you could buy the fluffiest, softest, most absorbent, multi-ply, scented, lotion-infused, gold trimmed, miracle paper that goes to the bathroom for you and sends you a text about how it went. You will be broke, but your fanny will be happy.

Or, you could be like most of us and find a nice middle ground. Something that has some of the features you want, but won’t break the bank.

That is how you should shop for education. Find something that works for you, but that won’t break the bank. And, since everyone’s bank is different, everyone’s education choices are different too.


I know that a lot of people believe that access to higher education should not depend on how much money you have access to. But, the reality is that it does. This article is not about what’s fair. It is about how to navigate the real system that exists in the US today. If the system changes in the future, I’ll update the article.


Spend as Much as You Want… If it’s Cash!

If you are incredibly wealthy then you can spend anything you want at any school you want on any degree you want. Go ahead, drop $250,000 on a degree in Surfing (a real degree, by the way). As you know, this is always a no judgement zone: you have worked hard for your money and you should spend it on whatever you want.

However, if you do not currently have the money to write the check, then I suggest you should put a bit of effort into making sure that the education you buy fits into your financial situation.

If You’re Not Outrageously Wealthy, Then Treat Education Like an Investment

If you don’t have the cash to write a check for the full cost of your education, then you need to treat it like an investment. You need to know how much your income is likely to increase as a result of having your degree.

There is absolutely no reason to go into debt to finance an education unless you expect it to increase your income.

Accessing a quality education for a reasonable price is really not that complex. There are just a few rules of thumb to follow.

  • Stay in state;
  • Start at a community college or technical school;
  • Study something you enjoy;
  • Study something that has a career path that pays you more than you make now, and;
  • Finish as quickly as possible.

How Much Debt is Too Much

The math for student loans is not terribly tricky. Here is the rule of thumb:

Figure out how much your annual income will likely increase when you have this new education. Do not take out student loans that equal more than 2-years of that additional income.

For example: let’s say that you make $30,000 today. If you get a degree in your field, you may be able to increase your income to $50,000 in the first year or two after college. That means, your income could go up by $20,000 per year. So, the most I would be willing to go into debt to get that income is $40k.

Then, when you graduate, continue to live and spend like you make $30,000 for two years and pay back all of the student loans.

Seriously, take every single extra dollar you make as a result of your fancy education and put it toward your student loans. Get them paid off as soon as physically possible.

Here’s why: student loans delay full-on adulthood. They impede your ability to buy a house, buy a car, get married, have kids, save for retirement, go on vacation.

Sure, you can still do all of those things with student loans. But, student loans make all of those things more difficult.

So, pay off you student loans. Immediately.

Then, you can go build some wealth.


Ignore Online Calculators

There are a ton of online calculators that tell you how much student debt you can “afford”. Ignore them all.

When you ask your bank how much car or mortgage debt you qualify for, they’re answering a very specific question. They are trying to determine the maximum amount they can loan you and still have a reasonable expectation of getting paid back.

You should have higher aspirations than to just barely be able to pay your debt back. You should want to pay it back quickly and get on with the business of your life.

The same is true of these online calculators. They are basing their math on your ability to pay back your loans over a 10-year period. That’s just gross.

Instead, make sure that you can see a clear path to get rid of your student loans as quickly as possible. Having them around slows your progress.

Don’t spend more time paying off your student loans than you did getting your education.

Pay Back Your Debt Before You Get Too Comfortable

Budget creep is a real thing.

It may not sound very insightful to say that the more you make the more you spend. Another way to say it is: the more you make the more you think you need to survive.

After you graduate, you are going to have to do the hard work of finding a good job. If you are successful, you will find a job that pays more than you could have made prior to getting your education.

Starting with the very first paycheck, put every single one of those extra dollars that your education just bought you back into your student debt. Do it before you get comfortable with this new income.

You don’t need to go buy a car right after graduation. Or a house. You don’t need to start dining at all the fancy restaurants. Once you do, it will be incredibly difficult to go back.

Instead, live like you are still in college for a just a little longer. If you did not go crazy piling up student loans, you can plow through that debt in 24 short months, and then you will never have to make a student loan payment again for the rest of your life.

Final Thoughts

This is not a discussion about how education “should” be. It is an outline for how to navigate the way it is. Many people believe that the education available to you should not depend on your ability to pay. Maybe someday that will be the reality, and this discussion will become irrelevant. But, until then, it pays to be wise when choosing an education to buy.

Don’t pretend that buying an education is somehow different than anything else you buy. You still have to shop around, find one that fits your budget and your needs, and don’t let the salesman convince you to buy more than you can afford.

The faster you pay off any debt you accumulate while in college, the faster you can start your adult life. Get after it!


I hope this has been helpful! I welcome your comments with your thoughts and questions. And, don’t forget to subscribe to the newsletter to get notified whenever a new article is posted.

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