How Much Student Debt Can You Really Afford? How to Judge
Often, financial aid counselors won’t sit down with you and help you figure out whether or not you truly will be able to afford that student loan once you graduate—or whether your financial aid package just doesn’t make sense in terms of your future earnings. If you want to figure out how much student debt you really will be able to afford to take on, you’ll have to think about it yourself. Here are some questions to ask yourself when considering whether you really can afford that student loan.
Starting pay for your career
How much do people in your industry make right out of school? How long does it typically take to advance to a higher-paying level? Pick a salary at the low end of the pay scale, adjusted for your geographic region—bear in mind that salaries can fluctuate considerably depending on where you live. If your student loan payment will be more than about 8% of that salary, chances are you’ll have a difficult time living on your own.
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Level of competition for your career
Your field might be high-paying—but if everyone is trying to get into it, it may take you longer than you’d like to find a job. In the worst-case scenario, how long could it theoretically take? Don’t be afraid to ask people who have been out of college for a year or two and who are now working in your field.
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Growth potential in your career
How stable is the career you want? Is it growing throughout the country? Growing in your geographic area? Are all the jobs getting outsourced to the Philippines? Know the employment trends in this career, and you may be able to predict better how difficult it will be for you to find and keep a job once you graduate.
Whether you can work right out of college
Do you need another level of education once you’ve finished your Bachelor’s? If you graduated from an accredited online degree program, how accepting of online degrees is your industry? Will you need a second degree? If so, bear in mind that that’s a whole other set of loans—and another several years before you can start paying them back.
Your school’s graduation rate—and whether you’re likely to graduate in four years
In large part, this depends on you—how well you organize your schedule so that you earn all the credits you need, and how careful you are about passing classes. But some schools have higher graduation rates than others within the four-year period—and if you stay in school longer than four years, it could cost significantly more than you expect.
The terms of your loan
The terms of your loan also matter. Will your interest stay the same or could it jump at the lender’s discretion? Variable-rate loans like this can make it very difficult to plan your budget in the future—because the interest rate can add a lot to your monthly payments.
In addition, be sure you know which of your loans are subsidized—and which aren’t. A subsidized loan does not accumulate interest in college; an unsubsidized one does. So the bill when you graduate will be larger for an unsubsidized loan, especially if it’s been sitting there for four years accumulating interest without any payments toward the principal. Most private loans are unsubsidized, and some government loans are too.
Paying for college isn’t easy—and it’s not uncommon for graduates to struggle with student loans after graduation. Some of the time, this is due to wishful thinking—the optimistic belief that you’ll land a great job with a good salary after graduating, despite data on starting salaries and market trends. If you really want to have a sense of whether you’ll be able to afford a student loan once you graduate, it’s essential to plan for the worst-case scenario. If you do, you’re likely to have a more reasonable amount of debt in the long run.
More About Reducing Student Debt
- Six False Assumptions New College Students Make About Student Debt
- Can You Really Get a Stipend to Earn That PhD?
- Intrafamily Loans: Should You Borrow From Family Members to Go to School?
- Obama Vs. Romney on Student Loans
- Student Loans, Credit Cards, Auto Loans: Which Debt Should You Pay Off First?
- Prepaid Tuition Programs: How They Work
- Do's and Don'ts of College Credit Cards
- The Cost of an Online Education
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