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9.1 Responsible Borrowing

Student Loans: Know Your Options

College is an important investment for your educational, professional, and financial future. An
undergraduate degree makes you a more educated citizen, prepares you for a career, or helps
you move ahead in your current vocation. According to the National Center for Education Sta-
tistics, the median income for college graduates is $48,500, whereas the median income for
high school graduates is $30,000 (see Figure 9.2). That is a 57% difference in earning power
over your entire adult life (U.S. Department of Education, National Center for Education Sta-
tistics, 2015).

Figure 9.2: Income: High school versus college degree

Though the thought of taking on a student loan may be scary to some people, the benefits of earning an Creatas/Creatas/Thinkstock
undergraduate degree can be helpful for one’s career and overall financial situation.
There are several options for student loans, each
with different interest rates and repayment options.
Research all your options to determine which will
be best for you.

Data from “Annual Earnings of Young Adults,” by National Center for Education Statistics, 2015 (http://nces.ed.gov/programs/coe
/indicator_cba.asp); and “Work-Life Earnings by Field of Degree and Occupation for People With a Bachelor’s degree: 2011,” by T. Julian,
2012 (http://www.census.gov/prod/2012pubs/acsbr11-04.pdf).

As you are aware, this valuable investment in yourself comes with a price tag. Few people are
able to pay for their education outright and therefore must take out student loans. It is impor-
tant to understand the types of loans that are available because each one will have a different
impact on your financial future. As you now know, interest plays a major role in how much
you repay in the long term.

Types of Student Loans

If possible, you want to obtain a federal loan (as opposed to a private loan) primarily because
it costs less and has better repayment options. Federal student loans are available from the
Federal Perkins Loan Program and the Federal Direct Loan Program:

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