Focus on your future student loan payment Here’s how to decide whether a school is truly affordable: Your student loan payment after graduation should be no more than 10 percent of your monthly take-home pay. That’s true for both parents and students. Use a student loan affordability calculator to find your maximum loan payment. As a student, you’ll need to know your expected first-year salary, which you can find in the Bureau of Labor Statistics’ Occupational Outlook Handbook. No idea what you’ll do after school? Use $50,000 as an upper bound; that’s the median annual salary for 25- to 34-year olds with bachelor’s degrees, according to the National Center for Education Statistics. But depending on where you live, $30,000 or $40,000 could be more realistic, especially for your first year out of school. Choose the right loans Keep an eye on the type of loans you opt for, too. Choose federal loans first, and take out the maximum amount of subsidized and unsubsidized federal direct loans that you can as a student. Parent PLUS loans have higher interest rates and fees than federal student loans, and they have higher borrowing limits. Parents who work for nonprofits could get PLUS loans forgiven through the Public Service Loan Forgiveness Program, as long as they go through the process of making those loans eligible. But in general, it’s troublingly easy for parents to borrow too much in PLUS loans. Also, PLUS loans require a credit check, so if a parent can’t qualify, a student may be able to get more unsubsidized federal loans. Parents should keep their borrowing well below the 10 percent threshold referenced above, and potentially look into private loans, if they can get lower interest rates than PLUS loans offer. Many private loans also offer the option to remove the parent as the co-signer later on, leaving the student with the responsibility for payoff. More than half of student loan borrowers in 2017 said their education wasn’t worth the debt they took on, according to a NerdWallet survey. You don’t have to be one of them.
Brianna McGurran is a former personal finance columnist and staff writer for NerdWallet, a personal finance website.
The article A College Education Isn’t Priceless originally appeared on NerdWallet.
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