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Student Loans Benefit These Two Groups Of Students The Most

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When it comes to borrowing money to pay for a college degree, two major groups stand to benefit more than the rest — students who pursue advanced degrees so they can earn considerable salaries one day, and those who borrow very little in order to gain quick entry into high-paying fields. 

On the far end of the scale, we’re talking about workers like physicians and surgeons, who may borrow $200,000 or more to finish school but stand to earn a median annual wage of approximately $208,000 as of 2019. And, what about orthodontists? These professionals also spend 10 to 11 years in school and various stages of training, but they can expect the same $208,000 in earnings once they’re done.

On the flip side, we’re mostly talking about students who pursue two-year degrees in profitable fields. Dental hygienists, for example, typically only need an associate’s degree to get started, yet they earned a median annual salary of $76,220 in 2019. Meanwhile, most radiation therapists spend two years in college and go on to earn a median salary of $85,560.

Students who fall somewhere in between tend to get the least value out of their college degrees, studies have shown. If you borrow $60,000 to pursue a bachelor’s degree in liberal arts and find a job that pays $40,000, for example, then you’re definitely not getting the best return-on-investment (ROI) of your college degree

A recent study from the Federal Reserve underscored this fact by showing how incomes of the college-educated have failed to keep up with the increasing costs of higher education. Per the study, consumers with a college degree actually “experienced relatively large declines in both median and mean income, whereas those with a high school diploma and those with some college experience saw gains” during the study period from 2016 to 2019. 

Meanwhile, “the income gaps between families with a college degree and those without one decreased.”

Will Your College Degree Pay Off? Here’s How to Tell

If you’re hoping to end up “ahead” in a financial sense when you graduate from college and break into the working world, experts agree you’ll need to do some research ahead of time. 

According to Josh Simpson, a financial advisor with Lake Advisory Group in Lady Lake, FL, your work begins with researching the average starting salary for a person not only with the degree you are pursuing, but also the average starting salary for someone with a degree in general. Fortunately, you can look up the latest figures for various degree fields using the Bureau of Labor Statistics Occupational Outlook Handbook. You can even break down earnings by region or specific industries for different types of work. 

Simpson says it’s also important to keep in mind that many people wind up switching jobs later in life. In fact, a recent study from the Federal Reserve Bank of New York showed that only 27 percent of college graduates worked in a job related to their college major in 2019. 

Meanwhile, students should consider the cost of the school they plan to attend, and if they would be better off with a more affordable option. 

“Just because a school is more expensive does not mean that you will make more money during your working years, so do the research,” says Simpson. 

If you can earn a degree for a lower cost, then you should at least consider it, and this is especially true if you have to rely on aid for every cent you need. After all, the total of your student loan balance will make a huge difference in your monthly payments on a 10-year repayment plan.

Are You Borrowing Too Much?

Speaking of student loans, Mark Kantrowitz of SavingforCollege.com offers a general rule of thumb to determine whether your loans will be affordable or not. 

If your total student loan debt at graduation is less than your expected annual income, then you can likely afford to repay your student loans in 10 years or less, he says. If you borrow more than you will likely earn in your career within a year, on the other hand, you may struggle to keep up and need an extended or income-driven repayment plan to afford the loan payments. 

This is the worst case scenario for borrowers who want to get out of debt sooner rather than later, and one you should strive to avoid.

“This means they will repay their student loans over 20, 25 or even 30 years,” says Kantrowitz. “They will still be in debt when their children enroll in college.”

Kantrowitz says that another sign you’re borrowing too much could be a need for private student loans. After all, federal student loans have caps that limit how much aid you can receive, and needing more than those amounts “may be a sign of over-borrowing,” he says.

The Bottom Line

If you’re planning to pursue a two-year degree in a medical or technical field or you’re considering a profitable trade, then you could likely borrow very little and start earning more than the median household income right away. Likewise, earning an advanced degree that lets you become an engineer, a doctor, or an orthodontist can be a profitable move even if you have to borrow six figures to finish the program.

But, those in the middle should watch out and run the numbers to see if their time and effort will be worth it. Statistics show that an expensive degree in a general field may not be a good investment anymore, but colleges and universities are still more than happy to collect tens of thousands of dollars in tuition and fees. When it comes to making sure your college ROI makes practical sense, it’s up to you to do the research, run the numbers, and decide.

Further, this advice applies to both future students and their parents, as some experts agree that parents may push their kids toward pricier schools for the wrong reasons. Financial advisor T. Jack Wang of Longhorn Financial says he often works with parents who went to a lower cost state school but still want expensive private school education for their kids. Occasionally, the parent’s ego plays too large of a role in the school that is chosen. 

But, families really have to think about whether or not that elite private school is worth it, especially for higher paying professional fields, he says. Running up hundreds of thousands of dollars in student loans is a breeze if you attend a pricey college, yet paying it off can make life miserable for decades to come.

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