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Is $100,000 in Student Debt a Good Idea?

More and more students are running up student loan balances of over 100k, but these large debts could be a huge mistake.

Written By: Michael P. Lux, Esq.

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Borrowing over $100,000 in student loans is a huge decision.

Many students and their parents make the mistake of signing whatever document a lender or school puts in front of them. They assume that the high-priced “dream school” education will be worth the debt.

As more and more students rack up six-figures of student loan debt, families need to ask an important question: is it a good idea to borrow $100,000 or more to pay for school?

The Price Tag Doesn’t Represent the Value of Education

Students at a good school with a hefty price tag might think that student loans are the only way of getting a diploma.

This mentality is very dangerous for two reasons.

First, many students attend school on large scholarships. The students without scholarships are essentially subsidizing the education of the scholarship recipients.

Second, many students at the school may have the benefit of parents or family funding their education. Most people are hesitant to share that mom and dad are footing the bill.

These factors combine to make it appear that a large price tag is justified and that opting for large student loans is a reasonable option. This is a dangerous way to look at things. A school might be an excellent value at $10,000 per year, but at $30,000 per year, it could be a huge mistake.

Too Many Borrowing Options

One of the dangers of student loans is that they are incredibly easy to acquire.

College financial aid offices are experts at helping students find the money for school.

Lenders see student loans as an excellent investment. Unlike credit card debt or mortgage debt, it is almost impossible for a borrower to get bankruptcy relief on their student loans. Additionally, many young borrowers don’t carefully review loan agreements. They are more inclined to agree to lender friendly terms like high interest rates or penalties for missed payments.

With colleges eager to help students find loans to pay for school, and lenders eager to provide funding, students are on their own when evaluating whether or not borrowing is a good idea.

In short, there are plenty of ways to acquire debt, but few warnings about the danger of $100,000 worth of student loans.

The Value Of College Has Changed

A generation ago, student debt was considered “good debt” because college was almost always a good investment. Students with any degree were usually able to find jobs that allowed them to pay off debt quickly.

Today, the price of education has grown so dramatically that not all schools and programs can justify the high costs.

For-profit schools are notoriously overpriced and offer little value to students. However, they are not the only culprits. Some reputable schools have programs that may be excellent, but the cost of attendance is so high relative to expected income that it ends up being a bad investment.

Making things even more complicated is the fact that getting a college degree has arguably never been more critical. The necessity of education combined with the “good debt” fallacy can result in some ill-advised borrowing decisions. Because of these factors, many well-intentioned and trustworthy people, such as parents and guidance counselors, offer some terrible advice on the merits of student debt. As a result, student loan horror stories are becoming far too common.

When does $100,000 of student loans make sense?

Evaluating college options requires taking a close look not just at the school, but at the major/area of study in question. A school could have an excellent engineering program and provide graduates with great jobs, but its English Department might have lousy job placement numbers.

To borrow responsibly, students must closely examine the salary that they can reasonably expect at graduation. If some graduates get large salaries, but most others end up with lessor paying jobs, the average salary might not even be a fair projection of future earnings. A careful review is essential.

A good rule of thumb is that total borrowing should not exceed the expected starting salary. If the average graduate finds a six-figure job, $100,000 in student debt might be a good idea. If the starting salary at graduation looks more like $50k, then students should avoid massive debt.

Earning a four-year degree on minimal student debt can be done. The students who save money on school are the ones who can afford things like buying a house, retirement, and marriage.

Make Sure College Is A Smart Investment

Analyzing the cost of school for four years is hard enough. Projecting what a salary at graduation will look like is even harder.

Fortunately, the analysis is pretty simple for a lot of schools. Some programs easily justify the bill, while others are not worth the cost. If you find yourself considering a school on the borderline, it might be prudent to look at some other options to see if there is a route where the money is better spent.

Prospective students who take the time to make smart choices will spend a lifetime reaping the benefits. In some cases, it means passing on a “dream school,” but the tough decisions made now will avoid student loan nightmares in the future.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

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