Recent studies show that parents can no longer afford to be the main source of college funding for students. As a consequence, today, most students take out loans to pay for their college education. This type of debt can be a wise investment, experts say, but students need to carefully consider how much is too much to borrow. U.S. News has some tips on how to manage student debt.
Look at the Total Cost of College
Tuition is only the tip of the iceberg for college expenses. Students should also factor in books, housing, meals and transportation. “People look at tuition and think, ‘Oh, that’s what I need,’” Suzanna de Baca of Ameriprise Financial told U.S. News last year. “They don’t really make a good list of all the different expenses that are involved.”
Once students calculate their total costs, they can figure out how to cover their expenses. Grants, scholarships and college savings plans should be used before loans come into play, experts say. Students should also deduct potential earnings from any part-time jobs, like waiting tables, from their total costs to determine what they need.
Colleges set tuition and fees, so those costs are easy to budget for. Housing, meals and entertainment expenses are another story. It may be tempting to live in an expensive off-campus apartment or eat out every night, but borrowers should be frugal whenever possible, experts say.
Student loans aren’t free money. The more you borrow, the longer it will take to pay off your debt. Before signing on the dotted line, consider declining any excess loans.
“We encourage reducing loans if they don’t need it,” Sara Harrington, assistant director of academic progress and loans at the University of Iowa, told U.S. News.
Talk to Others Who Can Help
Most first-time college students have minimal experience with managing money, much less borrowing large sums.
Seek out advice from college graduates, parents and especially your school’s financial aid office to ensure you are not making any financial aid missteps, experts say.
At some point, student loans need to be repaid. Students should be clear not only on what the repayment terms are, but how much the payments will be. The Department of Education’s repayment comparison calculator gives students an estimate of monthly loan payments for federal loans under various repayment plans.
Once you know the payments you will face after graduation, make sure you can afford them. The goal is to owe less than what your starting salary will be after graduation, financial aid expert Mark Kantrowitz told U.S. News last year.
Sites such as PayScale list the average starting salary for a variety of majors, including elementary education.
Pay Attention to What and How You Borrow
“Always exhaust federal loans before going to private,” says Sara Harrington, assistant director of academic progress and loans at the University of Iowa.
If federal loans are insufficient or unavailable, evaluate private loan offerings, keeping in mind interest rates and repayment terms. Taking on student loan debt can be a smart financial move, if it is well researched, experts say.
“I think we’ve given the impression to some parents and students that borrowing at all is dangerous,” Brian Lindeman, financial aid director at Macalester College, told U.S. News last year. “A reasonable amount of student debt can be one of the best investments a student will ever make.”
College is not a one-year enterprise, and student loans pile up along the way.
“It’s really important for students to be aware of how much they are borrowing,” says Sara Harrington with the University of Iowa. “Not just one year at a time, but the cumulative effect of it.”
Borrowers can use the National Student Loan Data System to stay on top of all their federal loans, including outstanding interest.