Are student loans a good idea?

Submitted to: N. Shukla

Contemporary Issues in Economics
April 7, 2018
Fanshawe College
 Are Student Loans a Good Idea? 1

The average cost a student will pay for university or college per year is $6 571 (Harrison,

2017, para. 1). While this number may seem low, the cost of textbooks, rent, groceries,

extracurricular activities, transportation and social life expenses can alter that cost to almost $20

000 (Brown, 2017). An individual between the ages of 18-24 will only make an average of $24

648 - if these individuals choose to pursue a secondary education career, this wage leaves limited

finances for life expenses such as traveling or car payments. Additionally, there are individuals

with a desire to pursue secondary education, who do not have the funding to do so. Through the

government, these individuals have the opportunity to take out student loans to fund their

education and live comfortably. The thought of debt can be stressful for the majority and taking

out a student loan can inquire debt for an uncertain amount of time. This paper will argue that

student loans are beneficial as they can provide individuals a higher return on their investment;

they allow individuals who are unable to afford a university or college education to pursue a

post-secondary career; they provide these individuals with competitive interest rate and multiple

repayment options that will be customized to their financial state; and they can be seen as a

“good” debt and work to improve credit scores.

The accumulated amount of student loans at the end of a four-year degree can be

staggering, but the eventual return on investment can be rewarding. The average tuition per year

for an undergraduate program in a Canadian university costs approximately $8 454 per year

(Collier, 2017, para. 2). The accumulated amount after completing a four-year-program will cost

upwards to $33 816; however, the average recent graduate salary for someone who has their

bachelors degree is $54 295 per year (Robinson, 2017, para. 4). One full year of working could

potentially pay off a students loan from their four-year program. If one works for 40 years they
 Are Student Loans a Good Idea? 2

will make approximately $217 180, which is a higher wage than if they did not attain a bachelor

degree. Individuals want to ensure they are receiving the highest possible outcomes when

investing their time and debt into a grand commitment like a student loan - the salary alone will

be a huge benefit of acquiring a bachelor degree. In addition, students can be confident knowing

their bachelor degree can potentially provide them with several opportunities such as getting

hired for a dream job. In an economy there is always trade offs when making decisions, like

whether to take out a student loan. In this case, deciding to not take one out could decrease the

opportunity of potentially attaining a great job with a higher wage; therefore, there is a large

opportunity cost associated with this decision.

In Canada, over half a million students who attend post secondary institutions either full

or part time have funded their schooling with student loans (Government of Canada, 2015). If

student loans did not exist these students would not be able to get an education. Student loans

allow individuals to get the education they need go out in the work field and find themselves a

career. In today’s society, a bachelor degree is sometimes not enough to get a good job in a

particular field of study. Competition for jobs and the requirements are getting higher than ever

and individuals who are not able to get the proper schooling end up falling behind and are unable

to compete with degree holders; therefore, the average individual who does not have a post

secondary education on average earns $1 million less than someone who does over their lifetime

(Osborn, 2016, para. 18). Conversely, if students who are not financially able, do not attend

university, the services that require degrees would have limited applicants; therefore, the

country’s standard of living would decrease as it wouldn’t have enough employees to manage the

services that require degrees. University students that receive their education through student
 Are Student Loans a Good Idea? 3

loans have a positive effect on the economy. They will produce more jobs and increase wages for

students without university education (The Graduate Effect: having more graduates grow jobs

and wages, 2016, para. 1). Student loans not only allow students to be competitive in the work

field but it allows them thrive in an economy and creates jobs for people who do not have the

privilege of schooling being paid for themselves. Student loans can bring stress relief to an

individual as well. People go live on their own while attending school can possibly find it hard

making ends meet financially; however, being able to have access to a student loan could provide

temporary relief from falling behind in bills or buying groceries while attending school full-time.

The ability to pay off a student loan after graduation can be tough with payments that are

going to have to be paid for the foreseeable future. The government helps students by allowing

them to have low interest rates on the loans and making it as easy as possible to pay the loan off.

Student loans give a competitive low interest rates comparable to other methods to pay for their

schooling. The competitive interest rates allows one to pay off the loan quicker than it would

have if a student funded their schooling with a private loan. Students who decide to use private

loans tend to pay more over the course of the loan with larger interest rate, and the process to

acquire a private loan is lengthy and also difficult to attain without a credit history. The Ontario

government gives students a six month grace period after they have graduated before they have

to start repaying their loan, which gives them time to find a job and get financially stable before

having to start making monthly payments on the debt. Even after the six month grace period they

are able to submit a request for the government to postpone the payments allowing them to put

themselves into the financial position to be able to make payments. In the fall of 2017 Ontario

announced that they are giving students that are from low-income families free tuition to attend
 Are Student Loans a Good Idea? 4

college (Rushowy, 2017, para. 2). The government implementing this feature attracting more

students to apply for student loans - since they announced this in 2017, 50 000 more students are

using student loans to pay for their schooling as they get free tuition (Rushowy, 2017, para. 2).

Features that a student loan provides gives incentive to students who are skeptical on taking out

student loans for their education.

Not only do student loans allow students to attend school, it has financial benefits as well.

Using a student loan can positively impact one’s credit score. A good credit score after one is

done school is important as it opens up opportunities in the future. This creates trustworthy

individuals who can handle repayments of a large loan, which allows these individuals to receive

substantially large loans in the future for large commitments such as purchasing a $400 000

house. A good credit score is much more than being able to get larger loans, it affects the quality

of one’s day-to-day life. In some cases it can be the difference of being hired for a job, or getting

an apartment of one’s choice (Peterson, 2010, para. 4). Having bad credit will make it more

difficult attaining other loans and if one is able to get one, they will be paying higher interest

rates as a result that you are a risk of defaulting on the loan (Peterson, 2010, para. 4). Overall, if

you are wise with smart decisions are made while paying off your student loans it can be an

opportunity to boost your credit score and have a positive impact on your future.

In conclusion, a student loan can benefit individuals who use it correctly and get the most

out of their investment, it gives students who live in a low income household a chance to go to

school and pursue an education, and it gives a competitive interest rate versus other methods of

paying for school, and multiple repayment options that allows individuals to repay the debt. Debt
 Are Student Loans a Good Idea? 5

can be perceived as a bad thing, but taking out a student loan unlike other sorts of debt can

benefit you in the future. Investing in oneself is never a bad thing and should be encouraged with

everyone.
 Are Student Loans a Good Idea? 6

References

Collier, Sabrina. (2017). How Much Does It Cost To Study In Canada? . Retrieved

April 5 2018, from https://www.topuniversities.com/student-info/student-finance/how-

much-does-it-cost-study-canada

Government of Canada. (2015). Statistical review, Canada Student Loans Program

2014-2015. Retrieved April 5 2018, from https://www.canada.ca/en/employment-social-

development/programs/canada-student-loans-grants/reports/statistical-review-2015.html

Harrison, K. (2017). University tuition fees in Canada jump 3.1% on average, StatsCan reports.

Retrieved April 7, 2018, from http://www.cbc.ca/news/politics/statscan-university-

tuition-1.4276740

Osborn, Peter (2016). Do College Grads Really Earn More Than High School Grads

Retrieved April 5 2018, from https://www.cornerstone.edu/blogs/lifelong-learning-

matters/post/do-college-grads-really-earn-more-than-high-school-grads

Peterson, Erin (2010). Why is good credit so important. Retrieved April 5 2018, from

https://www.bankrate.com/finance/credit-cards/why-is-good-credit-so-important.aspx

Rushowy, Kristin. (2017). One-third of Ontario college and university students receive

free tuition grants. Retrieved April 5 2018, from

https://www.thestar.com/news/queenspark/2017/09/11/one-third-of-ontario-college-and-

university-students-receive-free-tuition.html

‘The graduate affect’: having more jobs graduates grow jobs and wages (2016),

Retrieved April 5 2018, from https://www.universitiesaustralia.edu.au/Media-and-

Events/media-releases/-The-graduate-effect---having-more-graduates-grows-jobs-and-

wages#.WscNMC7wbIU