Student loans have become a necessary part of a college education. There are stories all over the media about students graduating from college saddled with lots of debt. While getting a loan may be necessary for many students to get through college, there are rules to follow to make sure you are not overburdened with loans when you graduate.
How many of you have heard of someone coming out of college with $100,000 or even $150,000 debt? That amount of debt affects a person’s ability to take on a car loan and especially a mortgage. It is even affecting a person’s prospect in marriage.
It will take time. There is no getting around that fact if you care about keeping your costs as low as possible. This becomes a journey that family and student take together because what is calculated for the student is often based on that student’s family’s income.
Find Out What People Pay
At the National Center for Education Statistics, you can find out what each college’s net cost is as well as how much families at different income levels paid. This information will prepare you for what it will actually cost and how much help a typical college student will get.
Find Out What the Family Can Afford
Often, schools will make assumptions on what a family can afford to pay which may not fit the reality of the family’s finances. Do not let the college tell you what you can afford. Truly look at the finances. There should always be money to pay expenses such as the mortgage, food, and utilities, and families should not stop paying into retirement savings (easier said than done).
Find Out the Manageable Debt Amount
This is a little harder, since students may go into college thinking about one career and then change career paths any time during their education. Know that you may have to revisit this again if circumstances and majors change.
First, look at the student’s career interest. Say a student plans on becoming a public school teacher in Maryland. Find sites that help you determine salary. One site you can use is by Indeed. A search for teacher in Maryland yielded $56,000 as an average. Remember, this is just average, so know it could vary a lot.
What loan amount is reasonable for that salary? Mapping Your Future offers two calculators that can help you. The first one tells you how much you can afford to borrow when you anticipate a certain salary. You need to have an idea of what the interest rates are at the time. Using the default of 6.8%, a repayment period of 10 years, and a salary of $56,000, it returned a loan amount of no more than $32,441.11. Most people say that a student should not borrow more than what he or she expects to make the first year out of school. Notice that the calculator returned an amount less than that.
The other calculator calculates the salary you need to support a certain amount of debt. So if a student comes out with $100,000 of debt at 6.8% interest to be repaid within 10 years, that student needs a job that pays $172,620.50 a year. It even has a space for future borrowing needs.
A college education is important, but at what cost? Do your homework and find out what you can truly afford and be creative in your college search. Ask questions and educate yourself as much as possible. And most importantly, do not sink yourself into extreme debt.