- A graduate may decide not to pay off a student loan, even if he has enough cash to repay the loan. If the graduate plans to borrow money for another purpose, such as opening a restaurant or buying a condo, he can use his available cash to cover these expenses and continue to pay the minimum on the student loan. The student loan offers a better return on investment than a higher interest rate business loan or mortgage.
- Wage expectations determine the return in the student loan calculation. If one-third of the graduates of a law school earn $150,000 a year after graduation, but the other two-thirds earn an average of $30,000, the average salary of a graduate is $70,000. The student should determine how likely she is to receive an offer to work in the profession that her degree trains her to perform, and the likelihood of earning a smaller salary than she expects.
- If a student takes out a private loan from a bank and the interest accumulates while he attends classes, the return on investment is lower than it is on a federally backed loan that only charges interest after he graduates. Some unsubsidized student loans don't require the student to make payments before he graduates, but interest liabilities still accumulate, reducing his return on investment.
- Lifestyle costs affect the student's return on investment. If a student can attend school on a budget of $20,000 a year, his return on investment will be higher than it would be with a budget of $25,000 per year if he earns the same salary after graduation. A university where apartments are cheap may have a better return on investment if a major is in high demand. Taking out a larger student loan may have a better return on investment if employers are more likely to hire graduates of a university that charges higher tuition.