How NOT to use Student Loans


When you take out student loans, you may have the opportunity to borrow more than you actually need for tuition, fees, books, and room and board. It can be tempting to ask for extra money to cover other costs associated with going to school — but it usually isn’t a great idea. That’s because student loans can be very costly. The bigger they get, the more time it takes to pay them off, and the more expensive they become.

In simple terms, it’s okay to use your loans to cover things that will have a long-term benefit, such as the cost of your degree and basic room and board. It’s generally not a good idea to borrow for things that will be consumed very quickly, like Saturday-night pizzas, munchies, adult beverages (of course, we’re referring to fancy coffee drinks), or concert tickets.The degree you receive should dramatically increase your lifetime earning power, so it makes sense to pay it back over the first 10 to 20 years of your career. It doesn’t make sense to spend 20 years paying for pizzas, drinks, or tickets.

Does it really make a difference? Here’s an example that may open your eyes. Suppose you use your student loan money to pay for that daily pumpkin spice latte you absolutely crave. It’s just five dollars, right? But if your average loan interest rate is 7 percent and it takes you 20 years to pay back your loans because you borrowed so much extra, each latte will eventually cost you more than $19! Would you pay that now? Then why pay it later?

If you want to enjoy pricey lattes, eat in restaurants instead of on your meal plan, and catch every concert that comes to town, that’s fine. But instead of paying for all that with student loans, you’ll be better off getting a part-time job. Your 20-year-old self may not want to work 15 hours a week in a fast-food place for a couple years, but your 35-year-old self will thank you for having done it.

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