If you’ve heard common student-loan horror stories, you might think that borrowing for school will leave you owing six figures, facing arrest for failure to pay and shackling your family to your debt even if you die.
But those are extreme cases. Student loans are a smart career investment as long as you borrow in moderation and graduate.
In the media: Ghoulish debt examples
Your perception of the normal amount of student debt might be skewed by what you see in the media. Outlets tend to feature borrowers who carry higher than average debt loads, according to a 2014 analysis of nearly 100 news articles by the consulting firm Hamilton Place Strategies.
Borrowers cited in the analyzed articles — some of whom were pursuing postgraduate degrees, according to the analysis’s co-author Matt McDonald — reported owing $85,400 in student loans on average.
Typical debt loads are much lower: The average student graduating with a bachelor’s degree in 2015 owed $30,100, according to the Institute for College Access and Success. That amount of debt is more manageable, especially if you’ll earn at least that much per year. Even paying just the minimum due on the standard federal repayment plan, which would be about $334 per month with a 6% interest rate, you’d eliminate your debt in 10 years. To pay it off faster and save money in interest, you can always pay more than your monthly minimum.
Student debt isn’t a dungeon
Keep in mind that a degree typically increases your earnings potential. Higher student debt levels are correlated with higher incomes, according to economist Sandy Baum in her 2016 book, “Student Debt: Rhetoric and Realities of Higher Education Financing.”
“Relatively affluent households carry a disproportionate amount of the outstanding student debt,” Baum writes. “Education borrowing is improving many more lives than it is damaging.”
Still, it’s important to borrow in moderation and graduate.
The importance of graduating is straightforward: If you don’t graduate, you don’t benefit from having a degree, but you still have to pay for it.
Borrowing in moderation generally means taking on less total debt than you expect to earn in your first year after college. Use the Bureau of Labor Statistics’ Occupation Finder and the Department of Education’s College Scorecard to research the amount you can expect to earn based on your job and school.
There are student loan ‘antidotes’
Even if you borrow responsibly, graduate and get a decent-paying job, paying back student debt can be painful. Thankfully, there are several ways to reduce the sting:
- Income-driven repayment plans tie your federal loan payments to your earnings. If you don’t earn enough, you won’t have to pay anything. However, you’ll pay more in interest, because you’ll be making payments for 20 or 25 years instead of the standard 10.
- Student loan forgiveness programs, such as Public Service Loan Forgiveness, wipe out your remaining federal loan balance after you make qualifying payments for a certain number of years.
- Student loan refinancing can lower your interest rate, which decreases the total amount you owe and can help you pay off your debt faster. But if you refinance federal loans, you can’t access repayment plans and forgiveness programs.
Armed with these strategies for managing student debt, you can save your screams for the haunted house this Halloween.