If you need money to pay for college, student loans are an obvious and often-used form of college funding. At the same time, they can come back to haunt you if you later have difficulty repaying the loans.
The last thing you want is to graduate college only to be faced with insurmountable financial challenges because of your loans. Be smart about your choice of loans so you can begin your professional career prosperously.
You really do have to pay them back.
Before you say “Well, I could just declare bankruptcy if I can’t repay my loans,” know this: Student loans no longer may be included in bankruptcy proceedings. Furthermore, loans are not grants; that is, they are not free money.
Simply put, you will need to pay back your loans, with interest. That’s why it’s so important to shop around and find the loans you can afford.
How do you know if you can afford it?
For starters, you’ll need to have an idea of what kind of career you want upon graduation. Will it pay enough to support your living expenses and also repayment of loans?
This interactive debt wizard at MappingYourFuture.org lets you plug in your expected salary, and the calculator will determine the maximum amount of student loan debt you should take on. You can also input your current amount borrowed and the amount you anticipate borrowing throughout college. Then you’ll see the salary required to make repayments.
Note that the calculator uses the recommendation that your student loan payment to be no more than 8 percent of your gross income. It does not account for a high amount of other debts. So if you have credit card debt or an auto loan, you’ll need either a higher income or a lower amount of student loans.
This calculator from FinAid.org lets you input a few more details, such as your field of study, expected graduation year and loan terms. Play around with both calculators to find out what amount of student loan debt you can reasonably take on.
You could have an advantage if you go into public service.
There is a federal program that forgives the balance of federally guaranteed education loans, under the following circumstances:
- You must work for the government for at least 10 years after graduation
- You must pay a percentage of your income toward the loan
The program is worth consideration if you anticipate having a large amount of student loan debt without the salary to match it. There are positions in just about every field imaginable, and as the nation’s largest employer, there is likely a public-service job out there for you.
The GoGovernment.org website is a good starting point for launching a federal job search. You can even just browse information by government agency or by field to get a feel for what’s out there.
Bottom line: Don’t get in over your head.
There’s no real safety net if you take on loans that you can’t repay. Take the time to plan out your future and how you’ll pay back that money — so you can truly celebrate once graduation day comes.