Student Loans Can Be Worth Every Penny

Don't let the headlines fool you...a college education is still well worth the cost

Matthew Frankel, CFP
Matthew Frankel, CFP
Jul 26, 2014 at 11:45AM

According to a recent report by the Wall Street Journal, the average 2014 college graduate with student loans owes $33,000, an all-time high. This is more than 12% higher than the average for 2012 graduates, which has led some in the media to label college as "unaffordable" or even to tuition itself as a "bubble."

flickr/ 401(k) 2012

Whether or not tuition costs and the resulting indebtedness that comes with it continue to climb at these rates is anyone's guess at this point. Easy student loan access and larger applicant pools every year are giving colleges little incentive to stop the tuition hikes. However, despite the large debt loads, it still appears that college is worth the cost. Here are a few reasons why borrowing to finance your education is well worth it, and some situations when it's not.

You'll make it back and then some
According to a study by Georgetown University, the average college graduate can expect to earn $2.3 million over their lifetime, and this jumps to $2.7 million with a master's degree. With just a high school diploma, lifetime earning expectancy plummets to just $1.3 million. All of a sudden, being $30,000 in debt doesn't seem like such a bad deal.

The median income for young adults (ages 25-34) is just $30,000 with a high school diploma, $46,900 with a bachelor's degree, and $59,600 with a master's or higher, according to the national center for educational statistics.

If you have the average student loan debt of $33,000, you can expect monthly payments of about $380 under the standard 10-year repayment plan, or $4,560 per year. So, the difference in salary more than makes up for the cost to pay off your debt. And bear in mind there are extended and income-based repayment plans which could make your actual payments much lower. The point is that you're much better off borrowing and going to school than going right into the workforce after high school.

And, some majors have much higher salaries, making the loans well worth the cost. To name a few, accounting majors average a starting salary of nearly $55,000, computer engineering majors $58,000, and the average electrical engineering major starts at more than $60,000.

But what if you get a low-paying job?
Sure it's worth it for engineers and accountants, but what about for students who aspire to careers with more modest salaries?

There are a handful of programs in place to make student loans even more affordable. For instance, the Pay As You Earn plan limits your student loan payments to just 10% of your discretionary income, and forgives any remaining loan balance after 20 years.

And, if you work in a public service career, such as teaching in a public school, law enforcement, social work, or many other non-profit careers, you could take advantage of the Public Service Loan Forgiveness option that takes care of the rest of your loan balance after just 10 years. For teachers, the deal is even sweeter, with an opportunity to have some of the loans forgiven after five years at certain public schools.

So, if getting a master's degree to qualify for your dream job will put you $70,000 in debt when the job only pays $35,000, don't worry. The actual amount you end up repaying should be much less than you borrowed.

The job security is nice
While the unemployment rate for very recent graduates is a little high (about 8.5%), once you land that first job, your employment outlook is much brighter with a degree.

The unemployment rate for all college graduates over 25 is just 3.3%, much less than the national rate of 6.1%. As you can see, the more educated you are, the better the unemployment picture is looking.

What it all means to you
Whenever you see a news headline about the "Student debt crisis" or the "tuition bubble", take it with a grain of salt.

Tuition is much higher than it used to be, but a college education is well worth what it costs to get it. And, for those who end up earning less money or have trouble finding jobs, there are several ways to lessen the burden of student loan debt.

The takeaway here is that no matter what you read, don't let the thought of taking out student loans prevent you from pursuing a college education.