Treat student loan debt and degree choice with caution. Rule of thumb: don’t take on more student loan debt than your estimated starting salary.
Student loans can be a means to obtaining a higher-paying job and are well worth it for many students, but unfortunately a large portion of young adults have more student loan debt than they can handle. The best years for saving and investing coincide with when many are going to college and taking out loans, which is why student loans can be so dangerous: they take away from some of your best investing years. The average student loan payment is about $434 per month, with borrowers taking 20 years to pay off their loans.
The following rules can help you determine a safe amount of student loan debt to take on:
- Your total student loan debt should not exceed your estimated starting salary. If entry level jobs in your field of study can expect to make $50,000 in the first year of work, your maximum amount of student loan debt should be $50,000.
- Take advantage of financial aid if you have the option. Whether scholarships, in-state tuition, or federal aid (FAFSA), if you have the option to take advantage of one or more of these benefits, take it seriously. This may make the difference in getting a good education in a financially smart way. Grants, work-study programs, and reimbursement from certain employers are also great options to look into. If you have questions about how financial aid is calculated and whether or not you qualify, check out this article: Your Complete Guide to FAFSA.
- Start saving early and consider using a 529. A 529 plan is a college savings investment vehicle that offers tax and financial aid benefits designed to be used for higher education and K-12 education expenses. These accounts are state sponsored, so specific rules vary from state to state. If you want to start saving for college while you or your child are young, this account is worth looking into.
Check out the video below for more of our thoughts on student loans.
