Before Taking Out a Student Loan: Things to Know

by Donald Wright
Before Taking Out a Student Loan photo

We explore the things you should know and consider before you decide to borrow money to pay for your college education so you understand how it will impact your financial future both immediately after college and years down the road.

Few students understand the implications of borrowing too much money for school and very few have an idea of what the student loans they are taking now will mean to their lives five, ten or twenty years later. People find it easy to take loans because they simply do not know the implications.

Before taking out a student loan, there are several important things you should know and consider.

There are other ways to obtain college financing.

Most students do not take the time to apply for scholarships or look into other financing options like working for the university where they are studying.

Whitney Hanson, a financial coach states that when she went back to earn her master’s degree in business, she got a job in the university and received a highly discounted tuition package. Her entire tuition cost her $472.

Explore the other paths before agreeing to a student loan.

Get an estimate of what your monthly payment will be.

It’s reasonable to have an estimate of what your monthly payment will be after graduation (or you drop out). With the aid of several online student loan calculators, you can have a clear picture of what your monthly payment would be if you take the loan. A good student loan calculator for you to use can be found here.

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Know the opportunity cost of taking loans.

An opportunity cost is what you give up to get something. If you spend money to buy gasoline, you don’t have that money to buy dinner.

Taking a student loan limits what you can do when you begin repaying the loan. After you leave school, you’ll need to pay rent, utility bills, buy groceries, make car payments, etc. Taking a loan now could prevent you from buying a house five or ten years in the future.

Student loan money should be wisely spent.

After paying for tuition and textbooks, some students are tempted to spend the rest in frivolous ways. One day the money will be gone. It’s tempting to pay for that next round of drinks, but remember that today’s friends are unlikely to help you repay your student loan years from now.

Know how long you will be paying student loans back.

When students commit to loans, only a few have an idea of the number of years they will write a monthly check. Research has shown that an average bachelor degree holder takes about 21 years to repay student loans. This means you will carry your student loans for over two decades! Many future financial decisions will be impacted by the loans you take today.

There is no guarantee that you will get a high paying job.

When teenagers go to college, all they think about is their future high-paying career. There is no doubt that parents and college counselors will urge you on to believe in your dreams. It is, however, dangerous to allow your dreams to influence your student loan decisions.

The problem is the average starting salary of a college grad is about $55,260 according to info released this summer by the National Association of College and Employers (NACE).

And, you might not get the high-paying job you dream of for your future. It’s better to consider if you could make the payments if you don’t get your dream job or, worse yet, don’t graduate.

Expensive colleges are not always better.

A top-tier college education could lead to better job prospects, but not all expensive colleges are worth their cost. There’s a big difference in cost between public and private colleges, and many state colleges have branch locations that allow students to live with their parents.

According to, “a moderate college budget for an in-state student attending a four-year public college in 2021-2022 averages $27,330. For out-of-state students at public colleges, the average budget comes to $44,150, and for students attending private colleges, the average budget is $54,800.” Consider the options before you choose a school.

Reviewed December 2021

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