Will You Be Able to Afford Your Student Loans?


Student loans

Before you apply for student loans, investigate one thing to avoid graduating with crippling debt: Find out how much graduates in your field of study make. Your college major is a major factor in determining how much to borrow for college.

"College students should plan on borrowing no more for their education than they can afford to repay in 10 years or less," says Mark Kantrowitz, senior vice president and publisher of Edvisors.com. "Otherwise, it will start to interfere with other major life-cycle events."

Don't borrow more than what you can reasonably expect to earn as your annual starting salary after graduation. This will help you avoid having your student loan obligations disrupt your future plans to buy a home, save for retirement or put aside money for your own children's college education. The reasoning behind this rule of thumb, says iGrad CEO Robert LaBreche, is to limit the debt payments to no more than 10 percent of a graduate's gross income.

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"If they continue to make that salary over 10 years and they allocate 10 percent of their gross income to paying back their student loan, they'll be able to pay off their student loan within 10 years," LaBreche says.

Besides researching national salary trends, LaBreche suggests you also look into what graduates of the school you're attending are earning. Most colleges have a career center where you can ask for this information.

Avoid future shock

The idea isn't to discourage you from pursuing your career passion, but to give you a clear-eyed view of the financial risks of borrowing money to do so.

"A lot of students get out of college not having the earning potential they think they will have," LaBreche says. "When they're in school, they are borrowing with rose-colored glasses on, thinking they're going to get their dream job."

But many of those students face a stunning reality when the loan payments come due after they start working.

Other ways around student debt

Before you sign a promissory note for a student loan you'll end up struggling to pay, make sure you've exhausted the alternative funding sources available to you -- especially grants and scholarships.

"Maximize the free aid first, because that's money that doesn't need to be repaid," Kantrowitz says.

Other options to explore before you apply for student loans include part-time work and tuition installment plans.

"If you can't afford to pay the bill in one big lump sum, you can spread it out into equal monthly installments," Kantrowitz says. "They don't charge interest, but they do charge an upfront fee that's typically less than $100. That can be a reasonable alternative to long-term debt."

Copyright 2015, Bankrate Inc.