Do You Really Need a Student Loan?

Alcoholics Anonymous says that the definition of insanity is to do something over and over again and expect a different result.  I’d also say it is insane to do what others are doing and expecting different results.  In handling finances, there are a lot of people who will tell you there are certain things you must do.  And those people will never become wealthy.  If you follow their advice, neither will you.

They will tell you that you will always have a car payment and need a new car every few years to save on repairs.  They’ll tell you you’ll need to get a mortgage and keep the mortgage for the tax deduction.  They’ll tell you to get a credit card to build your credit and handle emergencies.  They’ll tell you that you deserve to take a vacation whether you have the money or not.  And they’ll tell you that you can’t go to college without a student loan.

“Everyone gets a student loan.  No one could afford to pay cash for college.  You can’t get a good job with out a college degree, and you can’t get a degree without a student loan.”  Really?

People are discovering today that getting a degree does not automatically result in a good job.  They are also discovering that it is really hard to pay off $50,000 or $100,000 in debt, even if you get a decent job.  They are finding that there are things they want to do like buy a house or buy a decent car and are finding that they have no cash to do either since they have student loan payments, so they are going deeper into debt.

In some cases, they are not taking jobs that are available because the pay isn’t enough to start paying off their debts.  Instead of taking the jobs anyway, getting experience, and maybe developing the work ethic and connections they need to get the next job that does pay better, they are moving home and doing minimal jobs or no jobs at all.  A lot of these people are now going on 30 and still working entry-level jobs sporadically.   They are ready to get married, and get a house, and have children, but they are living as perpetual teenagers.

Besides causing people to not take jobs and begin to work their way up, student loans have been shown to:

1) Result in additional spending on lifestyle.

2) Result in people spending longer in schools.

3) Result in people getting degrees at really expensive schools for careers that pay poverty salaries (theology, any one?) or for for which there are no jobs (French literature or environmental science, anyone?).

4.  Result in people going to college without a major, essentially wasting a year or two, or changing majors, wasting a year or two, only to discover that for a lot of jobs having a degree is more important than having a particular degree.

So I’ll propose a question that will be blaspheme to many:  Do you really need a student loan?

What if student loans didn’t exist?

Maybe parents would start to save when their kids were born instead of taking the attitude that they could never save up and pay for college.

Maybe students would look at state colleges instead of expensive private schools, realizing that for most careers it really won’t matter.

Maybe students would do better in high school to get scholarships or spend more time the summer before college applying for several little scholarships.

Maybe students would start out at community colleges for the first year or two and save $10,000-$20,000.

Maybe more students would take more classes, take summer classes, and work harder to finish within four years or less.

Maybe more students would cut lifestyle to minimize expenses.

Maybe more students would take part-time jobs, work-study programs, and take summer jobs.

Maybe schools would charge less – particularly in state schools – because they could not get enough students if they didn’t.  The student union and exercise facility might not be as nice, professors might need to teach more classes, administrators might settle for smaller salaries and the amount spent on the grounds and presidential mansion might decline , but tuitions could drop.

And maybe people would graduate without any debt.  They would be able to take whatever jobs were available and work their way up.  They would be able to save a down payment and purchase a house in a few years.  They would be able to save up for their children’s college, stay out of credit card debt, and have money for retirement.  They would have perhaps hundreds of thousands or millions of dollars more over their lifetimes to spend and invest without all of the interest payments.

Is this possible?  Well, at the University of the Ozarks, there are no student loans.  There are scholarships and there are work-study programs, but student loans are not allowed.  Everyone who graduates does so without student loan debt.  Everyone who drops out does not have student debt.  Everyone starts out their careers fresh and free.

Maybe state legislatures should consider a similar system for the benefit of their residents.  There might be smaller enrolments, but this would also reduce the costs for dorms and classrooms for Freshmen who will never become Sophomores or Juniors.

Once again, do you really need a student loan?

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.


  1. Good post, I agree with what you are saying. But, I would like to take another look at this. I think a big problem for the rise in college costs is because of the government handing out student loans to young kids who do not yet understand money.

    What are your thoughts?

    • Absolutely. It actually builds on itself, where colleges build all kinds of improvements to attract students, then raise tuition to pay for those improvements, which causes students to get larger loans since they don’t understand what affect that loan will have on their lives. One of my alma matters, the University of Arizona, tore down a perfectly good student center and built at $300M replacement. Up until now people would pay whatever was charged and just get a bigger loan. Without the loans, colleges would see an effect on demand when they raised tuition. I think there is starting to be some pushback now since the loans have gotten so large. Student loans are the next bubble.

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