I have never lived in a house that was not connected to some sort of sewage treatment system. I can barely remember the outhouse at my grandmother's house, but it was rarely used when I was a kid because they had installed indoor plumbing years earlier. We actually have an old outhouse on our property, but I have never even stepped foot inside of the structure, because I can never think to check it out during the winter when it would be easy and safe to get to it.
I think of a septic system as more of a luxury than a necessity. Yes, it is technically necessary to have one, to comply with many local building codes, but aside from that, one really isn't necessary. My primary concerns with not having a septic system are environmental, but as long as waste is handled, stored, and dealt with properly there is no real reason for concern. Other than that, the biggest downsides to not having a septic system appear to be the inconvenience and the perception of others. I will readily admit that walking to an outhouse in the middle of the winter is a big inconvenience, and is not something I'm eager to do. However, there are many options for composting toilets that can be installed inside, including the simple saw dust and bucket toilet.
As surprising as it might seem, there are actually several disadvantages to installing a septic system. These apply specifically to individual systems, and not municipal systems, which have their own disadvantages that I will not go into here.
The first disadvantage is the cost. Having a system professionally installed can be quite expensive. Our system cost approximately $3500, including materials, labor, and permits. When compared to a thousand dollar composting toilet, or a five dollar bucket, that is quite expensive.
Installing a septic system also requires a great deal of disruption to the surrounding area. This wasn't an issue when we had our installed, because the entire area had been worked by a bulldozer to make a spot for the trailer. In some situations, however, the disruption may be much more of a concern. I expect this to be the case when we build our house, since we plan to build in a wooded area and want to minimize the impact to the surrounding environment.
Septic systems also waste water, even if the most efficient fixtures available are used. Every flush uses water that would not otherwise be used. Gray water, from showers, sinks, etc that is sent to the septic system could have been used, instead, to water plants.
Last, but not least, is the issue that by using a septic system we are missing out on the benefits of using the organic material and nutrients included in the waste being flushed away. I do currently collect urine, to be used on the garden and in the compost. Having a septic system certainly does not prevent me from doing this, but having a composting toilet with urine diverter would make it easier. I understand that many people are squeamish about collecting and using solid waste, especially on food crops, but when composted it can be safely applied to trees and non-edible plants used for landscaping.
When we build our house, we intend to install a composting toilet and gray water system rather than a septic system. The thought of living without a septic system seems like a minor inconvenience, at most, if properly planned for. Granted, we may discover that the sacrifice is greater than we imagined, since neither of us have lived with a septic system before, but we will happily take that chance. People survived for thousands of years without septic systems, and millions of people still do so today. Surely we can manage to get by without one.
There are some good resources available on the topic of recycling or composting human waste. I have previously reviewed the book Liquid Gold, about collecting urine so it can be used on plans. I have also read a great book on the topic of composting solid waste, called The Humanure Handbook. I look forward to reading through other titles on the topic, including Holy Shit: Managing Manure to Save Mankind and The Toilet Papers.