Debt Management

Student Loans: “Borrowing Now” to “Pay Later”

In recent years, more students have begun to rely on educational loans to help pay for college. Educational loans can be an excellent resource for students trying to pay educational costs, but the amount of debt incurred should be considered carefully.

Borrowing money to pay for college has long-term financial implications. Like any other debt, a student loan is a serious financial obligation that must be repaid. In addition to the principal amount you borrow, you will be charged interest for use of the funds. The principal plus interest charged, divided by your repayment period in months, determines the amount of the monthly payments you will be required to make when you leave school. Failure to make on-time monthly payments may affect your credit rating and your ability to borrow for other purposes.

How Much Will You Be Able To Pay?

To determine how much indebtedness you will be able to manage when you graduate, consider your expected starting salary, earnings prospects, and lifestyle. Then estimate your anticipated level of debt and monthly payments and see if the two are in line. If you can’t afford your projected payments, try to borrow less. On this page are:

  1. For average salaries for 2019, visit the Bureau of Labor Statistics’ Outlook Handbook
  2. Worksheets: Loan Amounts Per Academic Year, Monthly Repayment Worksheet, Budget Worksheet (/?p=206Available on our Forms Page )
  3. Try out loan repayment calculators, such as SFA’s /?p=224Loan Calculator

Try to be realistic when projecting future earnings and how much you will need to live when you graduate. Remember that starting a new job and setting up living arrangements will require extra resources and create a heavy initial demand on your new income.

For more complete information on repaying your student loans, go to the Aid site.

Key Points to Remember

  • Develop a financial plan for the complete cost of your education.
  • Consider your chosen field of employment and its expected annual income before you accept a student loan.
  • Re-evaluate your future expenses each time you borrow.

Factors to Consider When Borrowing

Consider the following when planning how much to borrow:

  • Amount. Think about how much you need to borrow. You may not want to borrow the full amount for which you are eligible.
  • Number of Loans. Your total indebtedness will be affected by your plans for further study. For example, are you going to graduate school?
  • Loan Limits. Most loan programs specify minimum and maximum amounts you can borrow.
  • Length of Repayment Period. You will save interest costs if you choose a shorter repayment period. The Federal Direct Loan Program offers a variety of repayment options.
  • Minimum Monthly Payments. Monthly payments will depend on the amount you borrow and the repayment plan you select. Perkins Loans require a minimum payment of $40 per month.
  • Borrowers Rights and Responsibilities. Be sure you understand your rights and responsibilities under each loan program. Keep all paperwork for future reference.

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