Upon graduation, it seems as if student loans become recent graduates biggest stress, and for good reason. By now, it’s a well known fact the total student loan burden is over $1.5 trillion in the U.S. Graduates of the class of 2018 left college with an average of $37,000 in student loan debt, which is staggering when you factor in that wages haven’t outpaced inflation in decades, and the average graduate only makes around $50,000 a year to start – or $3200 per month.
It can be hard to juggle all of life’s expenses with a hefty student loan payment (around $350 per month for the average borrower.) So keep in mind, there are some benefits to having (and repaying) those student loans each month. When you start to feel really weighed down by the numbers, here’s some silver lining to keep in mind.
Builds Credit History
The good news is that if you took out loans as a college freshman, you began building your credit history at age 18. Credit history is super important because as an adult, you’ll need a great score and a verifiable history of on-time payments in order to qualify for housing or additional financial tools (like a credit card or auto loan) without a cosigner.
When looking at it from this angle, student loans actually help you adult sooner and become more financially independent of your parents, faster.
Improves Credit Score
Assuming you pay your student loans on time and in full each month, having loans (also known as installment accounts) contributes to your credit score. 10% of your overall score is made up of your types of accounts (a.k.a credit mix), and lenders use types of accounts to statistically predict your creditworthiness. If you are responsible enough to have multiple types of debt: credit cards, student loans, or a car loan, then you’re likely responsible enough to repay your debt.
So, if you have student loans and a few revolving accounts (like credit cards) you will likely be viewed as having a healthy “mix” of credit and thus garner a higher score.
Increased Earning Power
While it may not feel like it when making that loan payment each month, student loans can actually make you richer, because your education will set you ahead in the workforce. Although there are a lot of studies that paint a dismal picture of student loan borrowing (wages haven’t kept up with rising tuition costs, for example), college graduates still earn $1 million more in their lifetime than non-graduates.
Learning How Much Expensive Items Cost Long Term
The lesson may not sink in until post-graduation, but when you leave four years of school with five-figure debt, it’s a great lesson in the true “value of a dollar.” Having so little left over in your paycheck after rent, utilities, and loan payments may prompt borrowers to think twice before taking on more debt or spending money on something they really don’t need.
For many students, these educational loans are the first big purchase they’ll have to repay in their lifetime. It can be hard for many to cope with the debt initially, especially when they didn’t receive something tangible in return, like a car or a house. Many may wonder if their education was truly worth the expense. But educational expenses are an investment in the future; the return on investment won’t manifest itself until further in the future.
Student loans are more than just a generational burden, and the benefits still far outweigh the costs. While it may seem like you spent $50k on a piece of paper for your office wall when you weren’t looking student loans actually turned you into a fiscally responsible adult, financed skills you continue to use to support yourself, and prepared your credit score for the next chapter of your life.