I’m going to give you some advice I wish someone had given me before I filled out my first student loan application and began borrowing to pay my tuition. Here’s how my story went – I picked out a great college – a private all-girls liberal arts university that has a great reputation, challenging courses and esteemed professors – and a hefty price tag. That was Agnes Scott College in Atlanta Georgia. Their policy, which sounds great, is to offer 100% financial aid to the students they accept. With only 500 students enrolled at any given time, it’s a luxury they can afford to offer, but what I didn’t understand at age 17 was that it meant I had to borrow the maximum I could and they would fund the rest.
I felt I was lucky to be there and signed all the Federal forms and borrowed the maximum I could. My family had no money – which was how I qualified for the financial aid – that and my grades – but I didn’t understand the ramifications of the debt I was readily incurring. I graduated owing about $40,000 with a degree that offered me a starting salary of $27,500. In hindsight, this was more than poor planning on my part – it was the culmination of no planning.
Here are five smart plans to consider now – even if you’re already in school and have already begun borrowing. There’s still time for some course correction (no pun intended) to make your future finances much more manageable!
#1 Know Your Limits
You shouldn’t borrow more than you can afford to pay back, but how much is that limit? Consider your major. Your total borrowing shouldn’t be more than your first year’s potential starting salary. If you are looking at a degree in education, you can expect to earn $38,000-$39,000 in your first year. Journalism majors will earn less. Engineers and computer science majors will earn more. It’s common sense, but students may not pause to think about what amount of monthly student loan payments they can afford. Check out this student loan payment calculator. If you have subsidized loans totaling $40,000 at 3.4% interest and plan to pay it off over 15 years, you will pay close to $300 each month. That’s enough to buy a car, save up for a down payment on your starter home or just have breathing room in your budget.
#2 Know Where to Go
The college you want as your ultimate alma mater doesn’t have to be where you go for all of your undergraduate work. Community colleges, online schools and smaller public schools are often much more affordable than schools with flashier “brand names” but you can then transfer in to get your diploma from the alma mater you want and get your degree more affordably. With more businesses interacting in the cloud, why not get your education there as well? Your first two years of school are much the same no matter where you go – core math, english, health and science courses can be taken at a bargain priced school. Just check to ensure that the classes will transfer in to your preferred alma mater and then you can get the degree you want at a more reasonable price.
#3 Know Your Path
If you are unsure what you want to major in, a costly school is probably a waste of money. Once you know what you want to do, then you can transfer in to a college with a good reputation for that major. But in this respect, refer back to #1 above. If your major isn’t a high earning one, but it’s the one you want, consider staying at a lower cost college throughout your education. If you really want the fancier school with the higher price tag, consider changing your major to one that will allow you to afford the payments associated with the education you aspire to. Just because you want the Maserati doesn’t mean you can afford it!
#4 Know Your Timing
There’s a sense of urgency when you graduate high school. You want to rush into college, get your four years done and move on to your future. But unless you’ve got a nice fat college account waiting courtesy of your parents, you’re headed into one of the costliest times of your life with little in your pocket. Consider taking some time off to sock away some cash. Or you can go to school one semester, work one semester and continue this way so that you can borrow the least amount possible and gain lots of life experience on the way. The difference between starting your first job at age 21 versus age 25 won’t matter in the grand scheme of your life – but a ton of student loan debt could!
#5 Know Yourself
Before you pay or borrow to go to college – any college – consider whether college is your path. Not every job requires a degree and not everyone needs to go to college. Our country has a profound lack of skilled workers for jobs that pay well. We have the highest college enrollment rates we’ve ever had in US history right now. Unfortunately, we also have the highest drop out rate. And many of those drop outs still have student loan debt to contend with. So before you decide on higher education, perhaps figure out your higher purpose and whether you need college to do it!
With these five tips you can plan your student loan debt future a little better. It’s true that education lasts a lifetime, but if you’re paying high monthly payments for the next two decades, that can also feel like a lifetime. In the meantime, if you already have student loans, consider consulting a student aid organization that helps borrowers manage student debt.