Are You Taking Out Too Many School Loans?
If you are contemplating taking out student loans, either for undergraduate degrees or professional programs, how do you decide how much is too much? Do you just pick the program you prefer and take out all you need in student loans? How do you figure out if you are going to be able to repay your loans in a reasonable amount of time? The best option is to choose your program wisely and only take out as much in loans as you truly need.
What happens if you don’t get that job you are planning on post-graduation? What if the economy crashes during your schooling and fewer grads end up getting decent jobs? Many students ended up in this situation after the 2008 recession, and many still end up in the same situation because things don’t always work out the way they hoped or planned. Whether things go as planned for you or not, you’ll be better off owing less.
How much should I borrow in student loans?
A good rule of thumb for calculating how much you should be able to afford in student loans is to borrow no more than what you expect your annual starting salary to be.
If you borrow more than that, the monthly loan payments will be a struggle. If you borrow less than that, you should be able to pay off your student loans in 10 years or less.
Reducing how much you pay in student loans
If you haven’t decided yet where you will be going to school, you should sit down and do some calculations before you decide. You should have a good idea of what portion of your school expenses will be paid by yourself, family, scholarships, grants, or fellowships, and what portion you will need to borrow.
If you are choosing between a few schools, consider cost of living and cost of tuition (minus any aid you will receive), and how much you expect to make after you graduate. That could mean that you choose a prestigious but less affordable school if you can count on a certain minimum salary post-graduation, or it could mean choosing a good but less expensive program to minimize your loan debt.
If you have already committed to a school, don’t take out more in loans than you need, and try to reduce the amount that you will owe.
There are a few things you can do to paying less in loans, for example:
- Apply for scholarships. Apply to the ones offered by your school, but also check other sources. You can search online or ask a school counselor to help you find additional resources.
- Apply for financial aid, if you qualify. Grants do not have to be paid back, and can be extremely helpful in subsidizing your school expenses.
- Avoid private loans. Private loans tend to have higher interest rates than federal loans, which means you will end up paying more overall.
- Work through school. If you can keep a part-time job during school, you can reduce what you need to pay in loans by taking care of some expenses yourself.
Do yourself a favor
It’s better to borrow only what you need as you need it. That way you don’t over-borrow and end up in difficult financial straits later because your monthly payments are too high.
Student loans are a necessary evil for most people, but you can lessen your debt burden by choosing a program that will give you a good return on your money, and by borrowing what you need, and not more.