For many families preparing for college, student loans are one of the biggest financial questions on the table.
Should you take out student loans? How much is reasonable? Should you choose a more expensive school if it offers the experience you want? And how do you know whether the debt will be worth it in the long run?
Student loans can make higher education possible when paying the full cost out of pocket simply isn’t realistic. But they also represent a financial commitment that can follow you for years after graduation.
Our approach is simple: student loans are a tool—not automatically good or bad. The key is learning how to use that tool wisely.
What Are Student Loans?
Student loans are funds borrowed specifically to help pay for higher education expenses. They may be used for costs such as tuition, housing, meal plans, books, school supplies, and other education-related expenses.
Unlike scholarships and grants, student loans must eventually be repaid—and typically with interest.
That means the real cost of borrowing isn't just the amount you receive today. You also need to consider what repayment will look like once you're out of school and beginning your career.
Federal vs. Private Student Loans
There are two primary sources of student loans: federal student loans and private student loans.
Federal student loans are generally accessed through the FAFSA process. In addition to determining eligibility for certain grants and other aid, FAFSA can help determine how much a student may be eligible to borrow through federal loan programs.
Federal loans can offer borrower protections and more flexible repayment options, which is one reason they are often the first type of student loan borrowers consider.
Private student loans, on the other hand, come from banks, credit unions, and other private lenders. Their interest rates, repayment terms, and borrower protections can vary considerably based on the lender and the borrower's credit profile.
Before accepting any loan, make sure you understand who you're borrowing from, the interest rate, repayment terms, and the protections available to you.
Before Borrowing, Look for Ways to Reduce the Cost
Our preference is simple: if you can complete your education with little or no student debt, that's worth pursuing.
Every dollar you don't have to borrow is a dollar that won't accumulate interest and require repayment from your future income.
Before turning to student loans, consider four areas.
1. Apply for Grants
Complete the FAFSA and determine whether you qualify for grants or other forms of financial aid that don't need to be repaid.
When you're comparing financial aid options, money that doesn't have to be paid back should generally come before money that does.
2. Make Applying for Scholarships a Priority
Scholarships can take work. You may need to search for opportunities, complete applications, write essays, gather recommendations, or meet specific requirements.
But consider the potential payoff.
If several hours spent applying for scholarships results in thousands of dollars toward your education, that can be an excellent investment of your time.
Check with your school's financial aid office and explore both local and broader scholarship opportunities. Don't assume that scholarships are limited to students with perfect grades or test scores.
3. Work While You're in School, When Possible
A part-time job may not cover the entire cost of college—and your education should remain a priority—but income during school can still make a meaningful difference.
If your job covers groceries, rent, transportation, or a portion of tuition, those are expenses you may not need to finance with debt.
Reducing what you borrow today can give your future self more financial flexibility.
4. Consider the Cost of the School Itself
Where you attend college can dramatically change the cost of earning a degree.
Before committing to an expensive school, compare your options. Could you complete your first two years at a community college before transferring? Could you attend an in-state university rather than paying out-of-state tuition? Are there schools offering similar programs at a substantially lower total cost?
The college experience matters—but so does the financial life waiting for you after graduation.
The name of the school on your diploma shouldn't automatically take priority over the financial consequences of getting there.
If You Need Student Loans, Borrow With a Plan
Sometimes, even after scholarships, grants, work, savings, and careful school selection, student loans are still necessary.
That doesn't automatically make borrowing a bad decision.
Higher education can create valuable career opportunities, and borrowing a reasonable amount to obtain a marketable education may be worthwhile.
But before taking on that debt, answer two important questions:
What career am I preparing for?
And:
How much am I likely to earn when I graduate?
Your expected income should be part of the conversation before deciding how much you're comfortable borrowing.
A Simple Guideline for Student Loan Debt
One guideline we like to use is:
Try not to borrow more in total student loans than you reasonably expect to earn during your first year after graduation.
For example, suppose you're pursuing a career where you expect to earn approximately $50,000 during your first year. Using this guideline, you'd want to keep your total student loan balance at or below roughly $50,000.
If you're entering a field with substantially higher expected earnings, you may have more room in your budget to repay a larger loan.
This isn't a guarantee that a certain amount of debt will be affordable, and everyone's financial situation is different. Instead, it's a helpful starting point for asking an important question:
Does the amount I'm borrowing make sense compared with the income this education is likely to help me earn?
And remember: this is a maximum guideline, not a target. If you can earn the same degree and enter the same career while borrowing significantly less, your future finances may benefit from it.
Choose a Career Path With Your Eyes Open
Salary shouldn't be the only factor when choosing a career.
Your interests, skills, goals, desired lifestyle, and the type of work you find meaningful all matter.
But when you're borrowing money for your education, expected income shouldn't be ignored either.
Research the career you're considering. What kinds of jobs are available? Is there demand for those skills? What is a realistic starting salary? What additional education will you need? How much will the entire education cost?
You don't have to choose the highest-paying career available. You simply want to understand the financial equation before committing to the debt.
Remember: College Isn't the Only Path
Higher education can be an incredible investment, but a traditional four-year university isn't the only way to build a successful career.
Trade schools, apprenticeships, technical programs, certifications, community colleges, and other forms of training can lead to excellent careers—sometimes at a fraction of the cost of a traditional degree.
The goal shouldn't simply be to go to college.
The goal should be to develop valuable skills, prepare for a career, and build a financial future that gives you options.
The Bottom Line
Student loans don't have to be something you're afraid of, but they should be taken seriously.
Before borrowing, look for grants and scholarships. Work and contribute toward your expenses when you're able. Compare schools based on total cost—not just the experience or name. Understand the career you're preparing for and what you can realistically expect to earn.
And if you do need student loans, borrow intentionally.
The decisions you make about education today can affect your finances for years after graduation. Taking the time to understand the numbers before signing for a loan can help you make a decision that supports both your education and your future financial goals.
To watch our video on this topic click here https://youtu.be/rHGkRHCX4fw
At Pinnacle Financial Advisors, our goal is to help individuals and families better understand the financial decisions that shape their lives. Financial education is an important part of building confidence with money, and we're committed to providing straightforward information to help you make informed decisions.
This material is provided for general educational and informational purposes and should not be considered individualized financial, tax, or legal advice. Individual circumstances vary, and you should consider your own financial situation when making borrowing or education decisions.