Is Less College Debt Always Better?

A college student looks at a book between the aisles at the Kyung Hee University Central Library on the university's campus i
A college student looks at a book between the aisles at the Kyung Hee University Central Library on the university's campus in Seoul, South Korea, on Tuesday, Sept. 3, 2013. South Korea, Asias fourth-largest economy, is emerging from the slowest growth in four years, fueled by an export rebound and fiscal stimulus that includes a $15 billion government-spending plan announced in April. Photographer: SeongJoon Cho/Bloomberg via Getty Images

Should students be borrowing more, not less?

The national student loan debt has now reached a new milestone at $1.2 trillion, and many experts speculate its impact on students.

It's a relevant question for minorities in particular, since they are hit harder by crushing loans. Students of color are more likely to take on more student loan debt and graduate with more debt as well. A 2010 study by the College Board Advocacy & Policy Center shows that student loan debt amounts of $30,500 or higher were more common among Black bachelor's degree recipients compared to their white counterparts.

Debt reduction is a point of concern for the African-American community. According to a recent survey by Prudential, a higher percentage of African-Americans -- about 48 percent -- cited debt as a top financial priority compared with the general population. The same survey also shows that one in four African Americans experienced depression and anxiety as a result of debt.

But fretting too much over student loans may be counterproductive. A growing body of research suggests that students who take out loans to pay tuition are actually more likely to stay in college.

A 2005 study by the National Center for Public Policy in Higher Education that tracked undergraduates found that 23 percent of borrowers dropped out, compared to 44 percent of non-borrowers.

Moreover, figures from a 2008 paper analyzing Department of Education data shows that Black and Hispanic students were less likely to drop out of school if they took out a loan.

In a recent article in The Atlantic, Jordan Weissmann argues that student loans help students stay in school because it essentially buys them the time to dedicate themselves to school rather than attending part-time or working long hours outside of the classroom.

Make no mistake -- much of the concern around student loan debt is valid. Crippling student loan debt can impede wealth-building later in life. You're less able to buy a house or invest in 401ks if your hands are tied paying back student loans.

But dropping out of college after taking out huge loans could have a devastating effect on your finances, since you'd be stuck with loans without the boost in earning power to show for it.

Students of color are more likely to seek out services from for-profit colleges and private loan companies, both of which make you more vulnerable to loan default. Therefore, it is critical to make informed choices and research your options beforehand.

But even so, figures show that holding a college degree still gives you worthwhile returns on your investment, with college graduates far more likely to be employed and earning higher lifetime salaries (choosing your major wisely also helps offset the cost of an expensive degree).

There's no one right answer to help you decide whether to take student loans -- but remember that they should always be a stepladder toward wealth, not away from it.