Is college debt worth it?

In the 2022-23 school year, students and parents borrowed over $98 billion in student loans, according to the College Board. That's because college can cost tens of thousands of dollars per year. To understand if such an investment is worthwhile, you need to consider your return on investment, both financially and in terms of your quality of life.

This guide can help you decide whether borrowing to attend school is worth it so you can make the most informed choice.

Is college worth the debt?

Deciding whether college is worth the debt is a very personal choice. Someone whose degree opened up doors for them and made them wealthy may have a very different answer than a former student who ended up not being able to use the degree they borrowed for.

The answer to this question is also shaped by your goals and desires when earning a degree. College is a prerequisite to some careers that don't pay much relative to others, but that are personally and professionally rewarding. While you might not get a financial return on your investment when looking at the hard numbers, the improvement in your quality of life also matters a great deal.

Ultimately, you need to consider the total benefits your degree provides, compared with the burden your debt presents, to decide if college is worth the cost in your situation.

What are the financial benefits of a college degree?

The financial benefits of a degree are undisputed, as ample data shows. Research from the Social Security Administration found that:

• Men with bachelor's degrees make about $900,000 more in median lifetime earnings than those who graduated from high school.
• Women with bachelor's degrees earn roughly $630,000 more in median lifetime earnings than high school graduates.
• Men with graduate degrees earn approximately $1.5 million more in median lifetime earnings compared with high school graduates.
• Women with graduate degrees have median earnings that are $1.1 million higher over their lifetimes compared with women who have a high school diploma alone.

Since earning a college degree generally does not cost as much as the degree is worth, going to school typically provides a positive ROI.

How does college impact long-term earning potential?

Today, a growing number of jobs require a college degree. According to a report from the Georgetown University Center on Education and the Workforce, more than 95% of jobs created after the 2008 recession went to workers with at least some amount of college education.

College can impact your earning power by reducing the likelihood that you'll remain unemployed for long periods of time. Data from the Bureau of Labor Statistics shows that college graduates are half as likely to be unemployed compared with those who earned only a high school diploma.

Of course, college graduates also tend to make more money each year and over their lifetime. Many of the most lucrative jobs are open only to those with at least a bachelor's degree. Having more and better-paying opportunities will affect your earning prospects for the entirety of your career.

Since your Social Security benefits are based on average monthly wages in the 35 years your earnings were highest, the higher income you'll likely earn during your working years due to your degree will also translate to a larger retirement benefit in your later years.

What is the burden of student loans?

The upside of earning a college degree is the increased access to job opportunities and the increased income. The downside is the substantial financial burden that student loans present.

Data from the Federal Reserve reveals that adults with outstanding student loans report lower levels of financial well-being. Research from the University of Chicago found that a high student debt burden was an impediment to homeownership. Student debt also results in more rental market stress and worse health habits among those with significant loan balances.

You can minimize your student loan burden by borrowing as little as possible, taking advantage of favorable loan terms available from the Department of Education, and exploring the possibility of loan forgiveness programs.

Are there alternatives to taking on college debt?

Borrowing for college is common, but it is not the only way you can pay to earn a degree. There are a number of other potential funding sources to consider, including:

• Search for scholarships and grants: Finding free sources of money you don't have to repay can reduce or eliminate your debt balance.
• Work while attending school: Explore eligibility for the federal work-study program to limit borrowing. Or see if you can find an employer who will subsidize your tuition and help you cover the cost of college.
• Attend a low-cost school: Earning some credits at a community college before transferring to a university could save you a substantial amount of money. Or, if one school offers you more scholarships and grants, consider attending that institution rather than increasing your student loan balance by attending a costlier college or university.
• Use a 529 plan: Parents and other adult relatives can help protect their kids from college debt by starting a college fund when their children are young. A 529 plan provides tax advantages for college savings and is one option to consider.

If you must borrow, you should look for the most affordable loans possible. The Department of Education offers subsidized student loans to undergraduates with demonstrated financial need. With subsidized loans, the government covers the cost of interest while you are in school and during periods of deferment. Make sure you understand the difference between subsidized vs. unsubsidized loans as you make your borrowing decisions.

Federal student loans also offer other benefits, including income-driven repayment plans and opportunities for loan forgiveness. Since private student loan forgiveness is not available, you should always exhaust eligibility for federal student loans first.

How can you evaluate the ROI of a college education?

You can evaluate the ROI of a college education purely on a financial level by:

• Estimating lifetime earnings after receiving your degree
• Comparing these costs to what you would have earned had you not received your degree
• Determining if your lifetime earnings minus the student debt you paid is equal to, or greater than, the amount you could have earned with no degree

Of course, this just gives you hard numbers as to whether your degree paid off. There are other factors, including whether you need your degree to work in a field you are passionate about and whether you are able to enjoy future financial security.

In total, 87% of bachelor's degree holders report financial well-being, which is 20 points higher than those with other educational levels, according to the Federal Reserve. This suggests earning a degree can alleviate financial stress.

The ROI of getting to do a job you love due to your degree can't be measured with math. It's hard to put a number on the increased degree of happiness you feel as a result of doing meaningful work. Still, while 56% of those with at least a bachelor's degree state that they're highly satisfied with their work, only 44% of those with only a high school diploma say the same, according to a survey by the Pew Research Center.

Consider this quality of life issue when you decide whether paying for a degree is worthwhile.

What personal and professional growth benefits does college offer?

College provides many personal and professional growth benefits beyond a potentially higher salary. Some other benefits include:

• Skill development: Many schools require you to take a diverse array of courses. This can deepen your knowledge of the world and aid you in developing transferable skills, such as problem-solving and critical analysis.
• Exposure to different ideas and personalities: College campuses are diverse places with people from different backgrounds and perspectives. Attending helps you interact with others and get exposed to other viewpoints.
• Professional networking: You'll meet other like-minded individuals in your classes and at your school. The connections you make could help you to find many opportunities throughout your professional career.
• Access to more work opportunities: You'll be able to do more jobs if you have a degree since many now require at least a bachelor's degree.

FAQ

Is it worth going into debt for college?

It may be worth going into debt for college if your degree allows you to do a job you otherwise couldn't, if it allows you to earn more income than you'd have earned without a degree, or if it allows you to get into a field you're passionate about.

How much college debt is too much?

Every student needs to evaluate their risk tolerance when it comes to debt. However, a good rule of thumb is to avoid borrowing more than the salary you can earn in your first year after graduation.

What are the benefits of college despite the debt?

Despite the debt, college offers many benefits. You can earn more money and become eligible for more jobs you may be interested in.

Are there alternatives to student loans?

Working while in school, finding an employer that offers tuition assistance, saving for college, and looking for scholarships and grants are all alternatives to taking on college debt.

What factors should I consider when deciding if college debt is worth it?

You should consider your career, earning potential, and the cost of attending college when you decide if you should borrow to go to school or not.