Whether you’ve just graduated from high school or you’re going back to college after years of employment, the road to a college degree will be full of challenges and opportunities. Finances will be at the top of the “challenges” list so it’s important to devote sufficient time to making wise decisions. But before you crunch a single number, it’s important to gauge your options. The truth of the matter is that relying too heavily on loans will land you in a big stinking pile of debt. And it stinks. Big time.
Before turning immediately to your loan options it’s important to look at ways to pay for college that don’t involve accruing debt:
- Merit: available from colleges and numerous private organizations.
- Bright Futures: State scholarship programs.
- Federal Grants: The two main federal grants are the Pell Grant and the Supplemental Educational Opportunity Grant (SEOG), both of which are only available to undergraduate students.
- Work-study: A federal program that subsidizes jobs for both undergraduate and graduate students.
- Working part time: This also can provide excellent work experience to help you land that first job.
- Parents/relatives: Don’t forget grandparents and other relatives.
- Attend a local community college for the first two years and then transfer to a public university.
- Attend a public instead of a private university. Many public universities have reputations of being as good or better than their private counterparts.
- Consider on-line degrees, which are rapidly growing in number.
- Military Aid: If you’ve done your service, you and your dependents are entitled to certain educational benefits.
- Employer Tuition Reimbursement Programs: While this is a great option if you have it, make sure you understand all stipulations of the program. Certain strings might be attached, like promising a certain number of years to your company after you graduate or certifying that you're not retraining for a new career.
After accounting for the above options, you’ll have a better idea of whether you also need to borrow, and if so, how much. But you also should determine if the amount you need to borrow is affordable from a re-payment standpoint. This can be done by estimating your future income and other expenses and making sure the loan re-payment amounts will not take an unacceptable portion of your income. Try to limit the sum of all your student loans to ½ of your starting salary. This will keep your monthly payments in the range of 5-10% of your gross income…a manageable amount.
For example, if you expect to be a public school teacher with a starting salary of $30,000, your accumulated college loans should not exceed $15,000. Conversely, if you expect to be a chemical engineer with a starting salary of $60,000 you could afford to borrow up to $30,000.
If you know you’ll need to take out student loans, the next step is to make sure you fully understand all of your options and what each will mean in terms of limits, interest and repayment.