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Student loans are a double-edged sword: they help you pay for college tuition, but then leave you with a monthly bill for at least ten years after graduation.
Higher education expert Mark Kantrovitz says the average student loan payment is $ 400 a month. Research has shown that these payments make it harder for people to save for their future, start a business, and start families.
“Most people can’t afford debt equal to the total cost of your degree,” he said. Anna Helhoski, student loan expert at NerdWallet.com. “That means there’s a good chance of biting off more than you can chew when it comes to student debt.”
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So, if you are going to go to college in the fall, you should try to take out a loan as carefully as possible, experts say.
“The general rule of thumb is not to borrow more than your average starting salary for your chosen career,” said Betsy Mayotte, President Institute of Credit Counselors for Students, non-profit organization. This includes the time it takes to complete the degree, usually four or five years.
You can see the annual average income in various professions on the website of the Ministry of Labor.
Helhoski at NerdWallet takes a more conservative formula. She advises to strive for student loan repayments that do not exceed 10% of your projected monthly after-tax income for your first year of school.
She gave an example: if you make $ 40,000 outside of school and the student loan interest rate is 3.73% (the current rate), the available payment will be less than $ 225, or 10% of your monthly income. pay $ 2,233. This means that the total amount you can afford to borrow for college tuition is about $ 22,300.
Mayotte has another way to help you determine the correct loan amount.
“Every $ 10,000 you borrow ends up being about $ 125 a month, every month for 10 years,” she said.
This means that if you pull out $ 100,000, you will have a monthly bill of $ 1,250. Whichever number you choose, make sure it sounds doable.
“Finally, never borrow on a forgiven loan,” Mayotte said.
At the same time, the chances that student loan borrowers will reduce or eliminate their balance sheets have diminished. has never been better, “until the legislation enters into force, you can’t count on anything, “Said Kantrowitz.
Before taking on private loans, make sure you have exhausted all federal student loans available to you, ”Helhoski said.
“Federal student loans provide borrower protection that private loans do not, such as forgiveness and income-based repayment options,” she said.
Under income-driven repayment plans, borrowers’ accounts are capped at a fraction of their income. Some payments are as low as $ 0, and the remaining debt is usually written off after 20 or 25 years.
Unlike most private student loans, you can also click the pause button for federal student loans for a specified period of time if you are unemployed or in financial difficulty.
“I almost never recommend private loans,” Mayotte said.