The class of 2015 graduated as the most indebted ever, with an average debt level of approximately $35,000, reported The Wall Street Journal. Before it, the class of 2014 held the “honor,” owing approximately $33,000 on average. And before that, there was the class of 2013, which owed approximately $31,000 per student.
With a new school year right around the corner, and new loans coming with it, future classes should be asking how to bust this trend. There’s no easy or right answer, and for many, student loans are inevitable. But that’s not an excuse to borrow blindly.
Instead, focus on certain factors and ignore others when figuring out how much debt to take on. Otherwise, you risk over borrowing, which can lead to financial challenges after graduation. To help you do this, here are some things that you should and shouldn’t let affect your decision.
[Learn to make a college cost plan to limit student loans.]
Do Consider Postgraduation Salary
The biggest consideration is obvious, but nonetheless true: only borrow what you can repay. That may be easier said than done, since you won’t know what you can afford until you get a job after graduation. There are ways around this, though.
If you know what you want to do after school, look at entry-level pay scales for that field. The Bureau of Labor Statistics can give you an estimate based on your state and the forecast for your industry of choice. If you’re not sure about your future career, search for starting salaries based on your intended major.
If all else fails, use the most recent data for new grads, which had the starting salary averaging $48,707 for the class of 2014.
Once you know your salary, try to limit your total borrowing so your payments are no more than 8- 10 percent of your monthly pay. That should position you to pay off your loans within 10 years. This calculator can help you figure out your numbers.
Don’t Consider Loan Forgiveness
If you’re looking at a career in public service, you may also be eyeing Public Service Loan Forgiveness to eliminate some of the debt you take on. And while forgiveness programs are a huge benefit to borrowers, you may not want to plan how much you borrow around them.
Regulations for these programs can change, and funding for state-specific programs can dry up. People change, too. You may start your dream career in public service post-graduation, only to realize a few years in that it’s definitely not for you. Ultimately, look at forgiveness not as a reason to borrow more, but as a potential bonus.
Find ways to [get rid of student loan debt without paying for it.]
Similarly, don’t count on new legislation to alleviate your debt. Student debt is a hot-button topic, and it will surely continue to be heading up to next year’s election.
If any future legislation does happen, it’s much more likely to focus on making repayment easier, not making it disappear entirely. If you are already enrolled in existing forgiveness programs, any future legislative changes will almost definitely grandfather in existing borrowers.
Do Consider the Loan Type
Not all loans are created equal. Remember that when you sign for yours. If you haven’t maxed out your federal loans before taking on private debt, you could be making a costly mistake.
While private loans may advertise low interest rates, these rates may be variable and tough to qualify for in the first place. Federal loans come with fixed interest rates, so you can estimate exactly how much you’ll owe each month after leaving school and plan accordingly.
[Check out three surprising student loan repayment facts.]
Federal loans also come with numerous repayment benefits that are more difficult to find from private lenders. These include options that can decrease or postpone your monthly payments, if you’re struggling to make them. Benefits like these can keep you out of delinquency and default, which feature fees and penalties that can make loan balances balloon.
Don’t Consider Promises of Repayment
This is one for the parents. As a parent, you may have the option to borrow a federal Parent PLUS loan or cosign a private loan to help cover your child’s education costs. If you do this, recognize what you’re getting into.
Often, parents take on these loans with the understanding — stated or otherwise — that their children will help with these payments after graduation. However, parents should understand that in the case of the federal Parent PLUS, the parent signs the promissory note and is ultimately responsible for these debts if the child cannot pay them.
This doesn’t mean you shouldn’t help your son or daughter, but you should do it in the context of what you can afford, not what they promise to repay you.
In the case of a parent cosigning a private loan, there may be the possibility of having the co-signer released from the loan after a certain number of on-time payments. However, a recent report by the Consumer Financial Protection Bureau says this process isn’t always as straightforward as it would seem, so make sure you study up on the lender’s release policy before signing for the loan.
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Know What Should — and Shouldn’t — Affect Student Loan Borrowing originally appeared on usnews.com