Are Student Loans Worth It? A College Affordability Calculator

College generally leads to more pay and steadier employment. Just be sure to limit student debt and graduate.

Anna Helhoski, Cecilia ClarkNovember 18, 2020
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Getting a college education is generally worth the financial investment as long as you graduate and are able to pay back college debt.

College is often touted as the best vehicle to upward mobility, but it comes with financial risks. Without borrowing student loans, college costs are out of reach for many students. Those who don't graduate or can't find a good paying job after college are less likely to be able to afford repayment.

Having a plan on how much to invest and how much debt to take can set you on the right track to reaping the benefits of college. Here's what you need to know to help you get the most out of your college investment.

Why college is worth it

Statistics generally show that earning a college degree leads to:

  • More pay: Earnings typically increase with higher levels of education. The median weekly earnings for workers with a high school diploma and no college was $749 in 2019, compared with $1,281 for those with a bachelor’s degree and $1,559 for those with a master’s degree, according to the Bureau of Labor Statistics.

  • Steadier employment: The unemployment rate decreases with higher levels of education, according to the BLS. The unemployment rate for people who didn’t attend any college was 3.8% in January 2020, compared with 2.0% for bachelor’s degree holders.

  • Better benefits: College-educated workers are more likely to have employer-provided health insurance and retirement plans, according to a 2019 College Board report. For instance, 52% of full-time workers with a high school diploma had employer-provided health insurance in 2018, compared with 64% of bachelor’s degree holders and 70% of advanced degree holders.

Additionally, there are the less-tangible benefits of college, like lifelong friendships, an expanded worldview and professional connections.

Compared with high school graduates, bachelor’s degree holders are more likely to be happy, vote, volunteer and participate in their communities, according to the College Board report.

Completing college is crucial

Taking out student loans and not earning a diploma is like financing a car and leaving it parked in the lot; you still have to make payments, but get nothing in return.

Without a degree, you’ll be less likely to reap the earnings and employment benefits of higher education. You’ll also be four times more likely to default on student debt compared with college graduates, according to data cited by educationdata.org.

But not all degrees will yield the same earnings and job prospects. The degree level, major and school can play a role in your post-graduation employment outcomes.

There are some cases in which a lower-level degree is worth more than a higher-level one. For example, the median earnings for workers with an associate degree in science, technology, engineering or math is $60,000, compared with $50,000 for workers with a bachelor of arts degree, according to a 2018 report by Georgetown University’s Center on Education and the Workforce.

Potential earnings shouldn’t be the only factor behind your choice of major — your interests and skills are important, too. But if you choose a lower-earning major, take on less debt to avoid being overburdened when it’s time to repay.

How much should I borrow for college?

Even if you graduate, get a job and increase your earnings, college may not feel worth it if you’re swimming in more debt than you can afford.

To estimate what a manageable college debt load looks like for you, aim for student loan payments that don’t exceed 10% of projected after-tax monthly income your first year out of school.

For example, someone earning $50,000 a year — roughly the average salary for new bachelor’s degree holders, according to the National Association of Colleges and Employers — shouldn’t be paying more than $279 a month toward student debt.

To stay under this threshold, they’d need to limit college loans to about $29,200 throughout their degree program.

This example assumes a monthly take-home pay of $2,792, accounting for about 33% of gross income going to federal and state taxes, and 401(k) contributions. It also assumes a 10-year repayment schedule and 2.75% interest rate, which is the 2020-21 federal student loan interest rate for undergraduate direct loans.

The 10%-of-after-tax-income rule of thumb returns a conservative estimate for borrowers who don’t expect their wages to increase dramatically. Students considering professions that require advanced degrees with quickly rising incomes,  such as business analyst, attorney or registered nurse, may have to do more complex calculations.

Student loan affordability calculator

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