Almost half of all Americans who ran up student loan debt regret not choosing a cheaper college. That’s a mistake you don’t want to make.
Excessive student debt can put you into a hole you can’t easily climb out of. Many grads struggle so much to make monthly payments that they have to put other life goals on hold, like buying a home or having children, because they’re financially overwhelmed.
To make it worse, student loan debt is not limited to the young. Over one-third of adults still carry student loan balances into mid-life and up to retirement age, undermining their ability to save for the future.
So what’s the secret for keeping student debt from messing up your life?
Be careful taking it on in the first place.
Here’s 3 tips to help you avoid making a mistake that can haunt you for years after graduation:
1). Don’t borrow too much. In most circumstances, your total student debt shouldn’t exceed the first-year salary you hope to earn after graduation. College specialists at Savingforcollege.com, an independent resource for students and parents, agree. “When total student loan debt exceeds annual income, the borrower will struggle to repay the debt over a 10-year repayment term.”
2). Know how much the payment will be. Before signing on the dotted line, make sure you know what that loan will cost you when it’s time to pay it back. Over half of student loan borrowers didn’t even attempt to figure out their future monthly payments before taking out their loans, says the Global Financial Literacy Excellence Center (GFLEC) at George Washington University. That’s especially important because student loans are normally paid back over a 10-year period, not the more generous 30-year span used for home mortgages. Even relatively small loan amounts can generate uncomfortably large payments. As an example, borrowing as little as $5,000 per year for a 4-year degree will cost you almost $200 per month once that diploma is in your hands. That’s on top of rent, car payments, and other living expenses that can weigh down a skimpy college grad starter salary.
3). Choose your school wisely. Higher education is an investment in your future. But in many careers, it may not really matter where you earn that undergraduate degree. Remember, you can rein in the cost of higher education by choosing a school that fits your budget and expected future earnings. You might want to save the big splurge for graduate school, where the name on the diploma may matter more.