The Pros and Cons of Student Loans: What To Know Before You Borrow

College can be a major investment. According to Sallie Mae’s 2025 study, “How America Pays for College,” the average undergraduate borrower spent $30,837 on college tuition in the 2024-25 academic year, up 9% from the previous year. For many families, savings alone aren’t enough to cover that kind of expense. 

That’s where student loans come in. Borrowing can make higher education possible, but it also carries long-term financial implications. Understanding student loan pros and cons can help you make an informed decision about whether applying for student loans is right for you.

Current private student loan rates

How student loans can be beneficial

For many borrowers, student loans make higher education financially possible. Here are the main benefits of taking out student loans: 

No up-front costs

According to a Sallie Mae study, 48% of families borrowed money to pay for school in 2025. Rather than paying your tuition costs up front, student loans allow you to borrow the money and repay it over time as your income increases. 

Higher earning potential

“The biggest advantage of student loans is that they make higher education, and by extension higher lifetime earning potential, accessible,” explains Andrew Latham, a certified financial planner (CFP) at SuperMoney. “The median bachelor’s degree holder earns around $28,000 more per year than a high-school graduate,” he adds. 

Federal loan benefits

Federal student loans come with low, fixed interest rates set by the government. This makes borrowing more affordable than most private loan options or credit cards. Federal loans also include certain borrower protections that can make it easier to stay on track financially after graduation.

Build credit history

Student loans also give you an opportunity to build your credit history. Making consistent, on-time student loan payments shows lenders you can manage long-term debt responsibly. This can help you qualify for other types of credit in the future, like a mortgage or car loan.

What are the downsides of taking out student loans?

While student loans make college attainable, they also come with long-term financial responsibilities that can be difficult to manage. 

Student loan debt

One of the biggest disadvantages of student loans is the debt burden many borrowers face after graduation. After graduating with a bachelor’s degree from a four-year university, the average borrower owes $29,560 in student loan debt, according to the College Board. This kind of debt can leave you with large monthly payments that can strain your budget for years. 

Accruing interest

The interest continues to accrue on the loans while you’re working to pay them off. While federal loans come with low interest rates, most begin accruing interest as soon as they’re disbursed. Over time, this can significantly increase the total amount you owe, especially if you use deferment or an income-driven repayment plan.

Default risk

Finally, there’s the risk of default. Borrowers who can’t keep up with their payments can face serious consequences, including damage to their credit score or wage garnishment. 

“Student loans are easy to take on but hard to escape,” cautions Latham. “Unlike most debts, they usually can’t be discharged in bankruptcy, and high balances can delay homeownership, retirement savings, or starting a family.” 

When deciding how to pay for college, it’s important to understand the differences between federal and private student loans. Both can help cover your higher education costs, but they vary widely in terms of interest rates, repayment options, and borrower protections.

Pros and cons of federal student loans

Federal student loans are issued by the U.S. Department of Education and are typically the first option borrowers should explore. They offer standardized terms, fixed interest rates, and a variety of repayment plans that can make borrowing more manageable.

Pros and cons of private student loans

Private student loans are offered by banks, credit unions, and online lenders. They can fill funding gaps after you’ve exhausted federal aid, but come with fewer protections.

Federal vs. private student loans

The table below highlights the key differences to help you decide which option best fits your needs:

How to decide if student loans are right for you

Before taking out student loans, Latham recommends comparing the total expected debt with your projected first-year salary after graduation.

“If your total borrowing will be less than your expected starting salary, that is generally a manageable range,” he says. “For example, borrowing $40,000 for a degree that leads to a $60,000 job is reasonable, while borrowing $120,000 for a $40,000 job probably is not.”

It’s also a good idea to research job placement rates, median earnings, and career trajectories in your chosen field before taking out loans. “Student loans make sense when they are financing a specific, marketable skill, not just the idea of college itself,” Latham explains. 

How to minimize the risks of student loans

Student loans can be helpful, but managing them is key to avoiding long-term debt stress. Here are a few strategies to keep your debt under control:

• Borrow only what you need: Max out any scholarships, grants, work-study, and savings before turning to loans.
• Choose shorter repayment terms: Choosing a shorter loan term means you'll have a higher monthly payment, but you'll pay less interest over the life of the loan.
• Compare rates and terms: If you have to take out private loans, shop around and compare multiple options. You can use Credible to compare multiple lenders at once.
• Explore forgiveness programs: If you work in public service or certain high-need fields, you may qualify for federal or state loan repayment relief.
• Make payments while in school: Even small payments toward interest can reduce your total balance after graduation.