Is Higher Education Worth The Risk Of Taking Out Student Loans?

A graph showing the total student loan debt in the U.S., in trillions of dollars, from 2006 to 2024.

Higher (post-secondary) education, particularly four-year college, is an expensive investment that many people can’t afford to finance out of pocket. The most common solution for this is to take out student loans, whether it be through the government or through banking institutions. Such an option to take out loans is needed because it helps individuals further their education and increase, in turn, their income and socioeconomic mobility. However, while student loans make education more accessible, they also carry significant downsides.

Even though student loans’ marketed purpose is to alleviate the financial burden of college expenses, limited discharge options, high interest rates, and complex forgiveness programs present significant challenges that threaten borrowers.

Federal student loans are provided by the U.S. Department of Education, and they are widely considered the safest loan option. There are two types of loans offered by the government: direct subsidized loans and direct unsubsidized loans. Direct subsidized loans are available only to undergraduate students with financial need. “Financial need” is determined by the difference between a student’s cost of attendance and what their family can contribute, and it’s calculated through the Free Application for Federal Student Aid (FAFSA). On the contrary, there is no requirement to demonstrate financial need if a student is applying for Direct Unsubsidized Loans. 

Under both options, your school determines the amount you can borrow, with the difference being that the amount borrowed through Direct Subsidized Loans cannot exceed your financial need. On a Direct Subsidized Loan, the U.S. Department of Education covers the interest during the following times:

• When the student is enrolled in school (at least half-time)

• For the first six months after graduating or leaving school

• During periods when payment is temporarily postponed due to economic hardship or unemployment

The government does all of this to prevent interest from piling up on low-income students before they are able to start paying their loans back. With Direct Unsubsidized Loans, interest begins accruing immediately, and borrowers are responsible for paying it.

A graph showing, during select years, federal student loan interest rates for parent, graduate, and professional PLUS loans; graduate and professional direct unsubsidized loans; and undergraduate loans.

Federal student loans for undergraduates currently have a fixed interest rate of 6.39%, differing from private student loans which have variable, often higher interest rates. Another advantage of federal student loans is that there is no credit history needed, making them more accessible to first-time borrowers and older adults who want to further their education but don’t have a strong credit score. Federal loans also come with repayment options such as income-driven plans, which cap monthly payments based on a borrower’s income and family size.

Despite federal student loans being an important resource for less fortunate students, they aren’t without their faults. One of the most controversial aspects is that student loans are not easily dischargeable through bankruptcy. Unlike credit card debt, medical bills, or mortgages, student loans require borrowers to prove “undue hardship” in court, which is a legal standard that is notoriously difficult to meet. Essentially, in most cases, borrowers are burdened by student loans for the rest of their lives, even if they experience financial hardship, unemployment, or disability. Even though bankruptcy is a strenuous process, it is still a safety net that gives borrowers a chance at financial recovery. Yet, even this option is denied to those with student loans.

Though interest rates for federal loans are often lower than those for private loans, they are still high compared to other government-backed lending programs. Over time, interest can make borrowers pay back significantly more than what they had originally borrowed, especially if they experience periods of deferment or low income. For borrowers who are unable to consistently make their payments, balances can grow rather than shrink, leading to crippling debt.

Loan forgiveness programs are presented as a solution, but they are complex and inconsistent. Programs such as Public Service Loan Forgiveness (PSLF) promise to forgive remaining balances after ten years of payments for borrowers working in public service fields. This may sound good, but confusing eligibility rules, administrative errors, and changing policies have resulted in countless individuals being denied forgiveness despite meeting the minimum requirements.

A simple digital graphic to visualize the costs associated with higher education.

Compared to federal loans, private student loans are even worse. They rarely offer income-driven repayment plans, deferment, or forgiveness options, and they are just as difficult to discharge in court. This lack of borrower protections means that private loan debt is harder to get rid of and can follow individuals for decades, increasing financial instability and limiting major life decisions like homeownership and starting a family

Since private student loans, unlike federal student loans, cannot be regulated, there have been several instances of loan service providers being incredibly predatory and colleges engaging in questionable partnerships with lenders. In 2024, the Consumer Financial Protection Bureau (CFPB) found evidence of institutional loan contracts that allowed schools to “illegally withhold students’ academic transcripts or access to classes…in the case of a default.” In addition to this, the CFPB observed that some servicers had distributed billing statements with incorrect due dates or account balances and debited amounts that they were not given permission for. These practices highlight how the lack of oversight in the private loan market leaves borrowers vulnerable to exploitation with little recourse.

While borrowing money may be necessary for students, they should take the time to fully understand the terms, interest rates, and long-term repayment obligations before committing to any loan. Federal student loans are a great option, but they can become burdensome if they are taken out irresponsibly or if life circumstances result in a borrower falling behind on payments. Ultimately, whether or not student loans are worth taking out depends on each individual’s circumstance, as well as the resources, opportunities, and networks that will result from receiving that education. Students must do what is best for them, weighing the offerings of their degree and institution against the potentially risky debt they will take on. Exercising caution is crucial, as offers that sound too good to be true often are.