Is a Student Loan Still a Good Investment?

Written by: Cash101 Staff

Is a Student Loan Still a Good Investment?

“Borrowing for college should be the best investment you’ll make,” says the student loan ombudsman, Rohit Chopra, of the newly formed Consumer Federal Protection Bureau, “but for many Americans, paying off those student loans is a real challenge.”

Since the mid 1960’s when the federal student loan program was put into effect as part of Lyndon Johnson’s Great Society program, low to middle income college students have depended upon student loans to give them the opportunity they would not have ordinarily had to attend college.

For the parents of those now attending college, student loans meant small low interest rate payments that could be paid off in a reasonable amount of time and not the unwieldy loans their children now face. For lower and middle class families, getting student loans became the defacto way to get a college education and as common and acceptable as getting a mortgage to buy a house.

When it came time for recent generations of students to go to college, there was no question in parents’ minds about signing their children up for student loans to help with tuition. After all, it had worked for them. Why wouldn’t it work for their children?

With both their parents’ and society’s blessing, today’s college students cheerfully obligated themselves for student loans that would haunt them for most of their adult life. Unlike the relatively painless experience college students of previous generations had with student loans, today’s student loans have been changed by a number of factors, the biggest one being the cost of a college education today versus the cost of a college education when their parents went to school.

Since federally sponsored loans no longer cover all of the costs of college, so called “student loans” from private lenders have become more common, particularly for students from families with higher earning college educated parents. Although these families do not qualify for the lower cost federally sponsored student loans, most do not make enough money to write a check for today’s high college costs, thus necessitating a “student loan” from a private lender.

Many of today’s private “student loans” lenders were under the same unregulated boom and bust cycle as mortgages and other credit products with the same kind of abuses that have since been curtailed on credit cards, mortgages, and other financial products.

Add to that the relative lack of financial experience of most college students who take over the process of obtaining student loans after the first initial years of college and you have the makings of a financial crisis waiting to happen. For many, the money for student loans was used as a means to help buy a new computer or help finance a used car for transportation and possibly even less practical applications of the money. Because they did not have the same protections of the federally sponsored loans of their parent’s day, these loans were not as quickly and easily paid off as the student loans of their parents’ day.

Today student loan debt has passed credit card debt and has hit $1 trillion mark and is “too big to fail” according to the CFPB ombudsman, Rohit Chopra, who is now taking complaints about private student loan companies.

Is a student loan still a good investment? It still can be if approached with the right kind of caution and understanding of what the true long-term costs will be. However, students need have a thorough understanding of exactly what they are getting into before they sign the dotted line.


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Is a Student Loan Still a Good Investment?

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