Student loan debt can be frustrating once you’re in it – but if you’re not yet neck-deep, it’s not too late to right your financial ship. The best thing to do is to borrow wisely from the get-go. But how can you know how much you can afford? That’s not a simple answer but it is one that you can figure out with a little bit of work. Here are five ways to know (or devise) how much you can afford to borrow in student loans:
#1 Figure Out What You’re Going to Be When You Grow Up
This is baseline information that you need to know to figure out how much you can afford to pay back after you finish college and start your career. If you are unsure what you want to do, you may not want to commit to a high level of debt.
Doctors and lawyers can typically afford to pay back more in loans than those that major in library science. If you don’t know what you want to do, consider taking a step back and perhaps start at a more affordable state school or community college until you develop your life plan a little more thoroughly.
#2 Assess Your Salary Potential
How much you earn should be a huge consideration in how much you borrow. Careership at MappingYourFuture.org is a great site to investigate potential jobs. You can search by career cluster, see which interests align with particular careers, what education is required and related career opportunities.
You can then see pay ranges and career growth by state. Knowing how much you will earn relates directly to how much you can afford to pay back. Your student loan debt shouldn’t exceed 8-10% of your gross income. But that’s not the only factor – see number three below!
#3 Will You Be Eligible for Forgiveness Programs?
You may have latitude to borrow more if you know you’ll have access to forgiveness programs such as the Public Service Loan Forgiveness program. PSLF is a new program that won’t see the first loans forgiven until 2017 and as with any government program, it could always be defunded.
Also, over-borrowing on the assumption that your debt will be forgiven could leave you in a bad way if you decide teaching (or government work) isn’t for you. Better to borrow more prudently in case your plans change than to have to choose between a career that’s not for you or a pile of debt you can’t afford.
#4 Figure Out Which Schools Fit Your Budget
We wrote recently about thinking hard when you choose your school and that can’t be overemphasized. Just as you would be less likely to purchase a Mercedes on a barista’s wages, you shouldn’t take on a pile of debt that your career choice can’t cover. That doesn’t mean you can’t go to a great school.
Some more costly schools may actually offer you a better financial aid package than lower cost schools if you have better grades. Harvard grads borrow less than many public school degree holders. Keep an open mind and apply to several different schools so that you have a range of schools to consider.
#5 Student Loans Can Be Good Debt
Not all debt is bad and student loans are a huge boon for those that couldn’t otherwise afford to get a college education. The student loan program has enabled millions of Americans to pursue higher education since its inception in 1958 that otherwise would not have been able to do so.
If you need to borrow to go to college, that’s okay; just make good decisions about how much you can truly afford to take on. Job prospects vary with the economy and you may find yourself in a difficult situation after school if you over-borrow. The good news is, programs like Income Based Repayment (IBR) and Pay As You Earn (PAYE) can help cushion the blow for those that struggle to get their careers started.
To get yourself off to a good start, sign up with Tuition.io as soon as you sign on for your first student loan. Our free tool will help you know at all times how much you owe, what payments you’ll be facing when you graduate, and how much your debt is reduced if you make payments while still in school. Also be sure to keep up with our blog for tips and news on student loans and check out our Student Loan Help Center for info on student loan terminology and How To guides.