Is It a Good Decision to Finance a College Education With Student Loans?

Many prospective four-year college students finance their education through student loans. These loans typically add up in the end to tens of thousands of dollars, and in order to pay them off comfortably you need to assure yourself of:

• A manageable amount of debt, on which you can afford payments over a 10-25 year cycle, plus
• A career that pays you enough to comfortably afford making those payments, while maintaining the opportunity to live a comfortable, satisfying life.

Despite what counselors may tell you, not every college education is equal. Some majors generally offer a viable path right out of college to a lucrative career. Some majors won't give you much more professional knowledge than an average high school graduate stepping into full time work after graduation.

For example, an accounting major can finish school with access to a variety of career paths immediately offering at least a $35K-40K annual salary, with future opportunities to earn $50K+ in more advanced roles. Every business needs skilled accounting personnel, and thus there's a guaranteed market for accounting graduates. Financing a 4 year accounting degree through student loans may prove a worthwhile investment, as someone earning at least $35K can afford a few hundred dollars in loan payments yet still be able to comfortably pay for other needs and bills, possibly leaving a substantial amount of disposable income for leisure or savings.

However, an art history major has few viable career paths carved primarily from an art history degree. You can teach in the field, though there are few art-specific instructor openings. A graduate can curate at a museum or run an art gallery, though along with very few such opportunities, such a career path typically requires some experience and connections. That's mostly about it. From there, your professional qualifications out of college stand on par with the high school grads in the job market competing for working class jobs that typically pay a high end salary of $30-40K.

With such dim prospects for professional work, financing a four-year art history degree with student loans might not be a prudent idea. Paying for housing and other needs on the salary of a service employee or administrative assistant is hard enough without additional $400-600 student loan payments.

The cost of the education itself is also an issue. If you're going to a local college on student loans with tuition that costs around $1000-2000 a term, then graduating without lucrative prospects hurts you far less than if you graduate from an expensive university like Princeton (where one academic year's tuition can exceed $25K) with an English degree and no readily available teaching career on the horizon.

Holding $8000 in total loans after four years of inexpensive college, you may only owe $200 a month in loan payments, manageable even on an entry level administrative salary. But when owing $500+ on loan payments, you had better enter the market making middle class money ($45K-50K in the US, as of now), or have an inexpensive living arrangement such as living with your parents for the next few years.

The recent development of Income-Based Repayment Plans for Federal Direct Loans can help offset the payment costs for expensive Federal loans. The program allows you to make payments relative to your previous year's wages (in cases of unusually low wages, you may owe no payments at all) and, after ten years of timely payments, the unpaid remainder of the loan is forgiven.

But even with that option in mind, the general challenge of getting (let alone maintaining) a job with a suitable salary is more difficult as employers tighten their payrolls and, in turn, expect stronger credentials and higher performance from new hires.

When asking if you can manage to pay off your student loans, the question of your ability to get and keep a job is as important a matter to consider as ever. Assuming debt for a college education isn't a straight yes or no decision. The value of the debt ought to depend on the career prospects your degree will offer you, and on the cost of earning the degree.