3 Tips to Limit Student Debt

In unprecedented numbers, today's young adults are struggling to pay back their student loans.

However, their trouble may benefit tomorrow's grads because it's bringing attention to a critical issue: Students don't know how much debt they reasonably can absorb.

Although no one can predict exactly what the future holds, it's important for students to look down the road and estimate how they'll pay their bills out of their starting salary, says Lauren Asher, president of The Institute for College Access & Success, a nonprofit based in Oakland, Calif.

"You need to think about what having the loans will mean for your lifestyle after you are out of school. A lot of people lose track of that," Asher says.

Here are three key lessons on how to borrow smarter, learned from the mistakes of current grads burdened with unmanageable student loans.

Tip No. 1: Your Debt Should Relate to Future Pay

It's Common Sense 101, but somehow it eluded us. You must be able to make your student loan payments out of your post-college paycheck.

"Total education debt at graduation should be less than the expected (annual) starting salary," says Mark Kantrowitz, publisher of Fastweb.com and FinAid.org.

He has pushed to link debt to salary, and while the idea may not have been widely conveyed to the public, it's become a rule of thumb among college aid experts, Kantrowitz says.

Asher says one year of salary can be a good benchmark, but monthly projections are easier for some students to comprehend. "Look ahead to what you expect your total debt to be, and then break that down into a monthly payment," she says. See the FinAid website to calculate these loan numbers.

Don Saleh, vice president of enrollment management at Syracuse University, says if your student debt payments are 10% of monthly income, paying off your loan that should be manageable. "When debt payments exceed 15% of your monthly pay, it's probably pushing too high," he says.

While Kantrowitz wants students to relate debt to future income, he wants to make clear that it's best to have the least amount of debt as possible.

"The main exception is for students going into public service fields," Kantrowitz says. Since 2009, student-loan borrowers can apply for loan forgiveness after working 10 years in public service.

Tip No. 2: Guesstimate What You'll Earn

Sure, linking student debt to salary is a great theory, but how's an English major with no idea what job he'll find or a high school senior who doesn't know if she'll major in business or education supposed to put it into practice?

Katharine S. Brooks, author of "You Majored in What? Mapping Your Path From Chaos to Career," says anticipating your future salary is a challenge.

But Brooks advises: "Don't hide out for four years," delaying a visit to your school's career office until graduation. Learning more about internship opportunities and what talents that job postings require can help students learn what skills to develop and what salaries and jobs will be available to them.

Brooks also likes the website PayScale.com, where you can enter job positions and your skills, and calculate average pay in different parts of the country.

Tip No. 3: Choose the Right School

When a student is evaluating a school, he or she must find out the amount of financial aid to expect from the university. The amount of financial aid a student is offered varies from school to school.

Students take on debt to fill in where financial aid leaves off. Once a student knows the financial aid amount, he or she can calculate the actual price tag of a particular school and decide whether the amount of debt required for that school is reasonable.

High school seniors may not know what their major will be and the salary they can expect. Here, parents must become involved to help determine appropriate debt, says Cathy Simoneaux, director of the Office of Scholarship and Financial Aid, Loyola University in New Orleans.

Saleh agrees that students and their parents should set a maximum student debt for themselves, regardless of what the career might be. "Students getting $40,000 in debt need to pull back and look at what they are doing, no matter how high-paying a career (they are aiming for)," Saleh says.

Kantrowitz says another barometer for choosing a school is the success or failure of former students of paying back their debt.

Beware of a repayment rate of the college total student debt of 25% or less, Kantrowitz says. That means only one-quarter of former students or less are paying their student loans in full each month.

A lack of progress at reducing debt could indicate that grads are deferring or defaulting on their student loans, perhaps because they can't get a job. That, in turn, raises questions about the training they received at the school, Kantrowitz says. You can find repayment rate information at the Department of Education. Saleh says poor repayment rates may reflect how many students actually graduated. And Brooks says schools with higher rates may be better at helping graduates navigate job placements.