Student Loan Debt: Judging How Much You Should Borrow
A few decades ago, students were told that they should choose the school of their dreams, and the money situation would “work itself out.” Today, with tuition and student loan debt astronomically high, students can’t afford to follow that advice. If you’re planning to go to college, you need to realistically assess how much you can afford to take on in student loans—by judging how much you’re likely to make and your career prospects when you graduate.
The sad truth is that many students attend their dream schools—private institutions with tuition rates of $30,000 per year or more—and then graduate to face low entry-level salaries, high unemployment rates, and a mountain of student loan bills. As a new college student, you may want to be optimistic and assume you’ll be one of the lucky ones. But you can’t afford not to assess the situation realistically—and make choices based on the kind of debt you realistically can afford to take on.
Do yourself a favor. Go to the Occupational Outlook Handbook and look up the job you want when you graduate college. You’ll get information on starting and continuing salaries, current job outlooks and the growth of the industry. Use this information and an honest assessment of your own financial situation to answer the following questions:
How much can your parents / family contribute?
As a new college student, you may want to be optimistic and assume you’ll be one of the lucky ones. But you can’t afford not to assess the situation realistically—and make choices based on the kind of debt you realistically can afford to take on.
How much can you get in non-loan aid?
Be sure you’ve exhausted every possibility when it comes to grants and scholarships. Know the total amount you’re entitled to under federal grant programs and be sure it’s part of your school’s financial aid package. And do the legwork to find grants and scholarships within your school and within private institutions and organizations that might help you—every dollar amount helps.
Check with community and religious organizations you belong to, the companies where you or your family members work, and the military if you are related to any veterans. There are also foundations that offer scholarships for students of specific ethnic, regional and financial backgrounds as well as those with specific interests of study.
What’s the starting salary for entry-level grads in your industry?
Know how much you can reasonably expect to make when you graduate—not over the lifetime of your career. Don’t go to a school that will put you in a position where you’ll have to pay 1,000 a month in student loans—when you can only realistically expect to make $30,000 per year or so for your first five years after graduation.
What’s the job outlook for entry-level grads?
In some careers, there are some entry-level jobs that pay as much as $90,000 per year—but only a tiny sliver of graduates get those jobs. Legal careers are a prime example of this. Law school can cost upwards of $50,000 per year. Many law students hear stories of recent grads getting paid large entry-level salaries at prestigious firms—but not every law specialty, or every city, offers those opportunities. A large number of law graduates land low starting salaries, and unemployment is high in this field. Don’t go to an expensive school if, given your location and specialties, it’s possible you’ll be struggling to find a job in your field.
What’s the long-term projected growth?
How much can you expect to earn in this career? And is it a growing field, or one that appears to be shrinking? If your passion is in a field that appears to be struggling, don’t go to an expensive school.
Are there loan assistance programs in this career?
Some fields, such as teaching and public service, include loan assistance programs that will help you pay off your loans. If you want to go into one of these fields, take those into account when you assess how much you can take on in loans. Bear in mind that not all loan assistance programs in all areas of the US will be the same.
If your dream career doesn’t pay much or doesn’t have a strong career outlook, don’t give up on it. There’s still a possibility you could do well in this field. However, you should avoid going to an extremely expensive school or one that’s not as generous with its financial aid. Use the answers to these questions to come up with a realistic dollar amount of loans that will be manageable after you graduate—under the worst case scenario. If you do, you’re more likely to avoid being overwhelmed with debt when you graduate.
Black America Web: The Color of Money: Clock Ticking on Student Loans
NYTimes: Out of College, Not On Her Own
FinAid.org: How Much to Borrow
More About Understanding Student Loans
- Credit Repair Services You Should Never Pay For
- Questions You Should Ask Before Applying for Student Loan Forbearance
- The Bank on Students Act: What It Is, and How It Could Help Student Borrowers
- How the Death of a Co-Signer Can Affect Your Student Loan
- Peer-to-Peer Student Loans: What They Are, and How They Can Help You Pay for College
- If You're Unable to Work Because of a Disability: What Happens to Your Student Loan?
- New Rules for Debt Collectors: How They Could Affect Your Student Loan
- Having Trouble Repaying Loans? The Department of Education May Be in Touch