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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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Taking out student loans of over $100,000 is a significant commitment.

Many students and their parents often sign any documents provided by lenders or schools without much thought, believing that the prestigious education from their “dream school” will justify the debt.

However, as an increasing number of students accumulate debt in the six-figure range, it’s crucial for families to consider whether borrowing $100,000 or more for education is truly a wise decision.

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 way of thinking can be risky for a couple of reasons.

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

Additionally, a number of 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 circumstances create the illusion that high tuition costs are normal and that taking out big student loans is a reasonable choice. This is a dangerous way to look at things. A school might be an excellent value at $10,000 per year, but it might not be a mistake at $30,000 per year.

Too Many Borrowing Options

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

Firstly, college financial aid offices are experts at helping students secure funds for their education. Secondly, lenders see student loans as an excellent investment. Unlike credit card debt or mortgage debt, it is almost impossible for a borrower to receive bankruptcy relief on their student loans. Finally, many young borrowers don’t carefully examine loan agreements. They are more inclined to agree to lender-friendly terms, such as 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 often left to make big financial decisions on their own without fully understanding the implications of taking on such significant debt.

In short, there are plenty of ways to acquire large debt, but few warnings about the dangers of $100,000 or more 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. Graduates with virtually any degree were usually able to find jobs that allowed them to clear their debt quickly.

However, the landscape has changed. The cost of education has skyrocketed, making it difficult for every school and program to justify their price tags.

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.

Complicating matters 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?

When choosing a college, it’s important to look beyond the school’s overall reputation and consider the specific major or field of study. For instance, a college might have an outstanding engineering program with excellent job placement rates for graduates, but its English Department might not be as successful in helping students find good jobs.

Students should carefully evaluate the salary they can realistically expect to earn after graduation. If only a few graduates land high-paying jobs while the majority earn much less, the average salary figure may not accurately represent what most students will earn. It’s crucial to do a thorough review.

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 look for ways to minimize debt.

Earning a four-year degree on minimal student debt can be done. The students who save money on school are better positioned to afford things like buying a house, saving for retirement, and getting married.

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 straightforward for many 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 carefully weigh their options 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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