Advertisement
Paying for College

Keeping College Debt Under Control

Don't take on more loans than you can handle. Students should consider their future income when borrowing money for school.

I decided that to pay for college without borrowing money, I would have to make some serious income. So I started a janitorial service for the commercial businesses near my school. Sure enough, I got a few contracts, each of which paid an average of $800 to $2,200 per month. And I ended up graduating with less than $3,000 in debt.

Advertisement - Article continues below

Thanks for reminding us that there are ways to pay for college without saddling yourself with loans.

I always advise students and parents to take a hard look at whether borrowing makes financial sense, based on their family situation and the student's potential future income. (See Does it Pay to Go to a Big-Name School?)

But many families apparently don't bother to make that calculation. In a survey by Sallie Mae, a whopping 70% of students and parents said that a student's postgraduate income either wasn't considered or didn't make a difference in their decision to borrow. No wonder I get so many letters from young adults who owe tens of thousands of dollars and want to know if there's any way to have those loans forgiven.

The answer is a qualified yes. Student-loan forgiveness programs do exist, but they're often very specific. For example, AmeriCorps and Teach for America both offer grants to help you pay off student loans, as does the government if you teach in a low-income school.

Advertisement - Article continues below
Advertisement
Advertisement - Article continues below

Also, a new law offers grants for teachers in training plus loan forgiveness for young people who go into public-service jobs. (For more on loan forgiveness, go to finaid.org/loans).

If you're looking for guidance on how much to borrow, consider these benchmarks from a survey by student lender Nellie Mae. Borrowers who devoted less than 7% of their gross monthly income to repaying education loans generally didn't experience any difficulty making their payments. Those with an education debt-to-income ratio of 7% to 11% felt more of a burden, which increased once the ratio reached 12% to 16% or higher. The median ratio for all borrowers was 8%.

Fidelity's College Savings Indicator found that parents expect scholarships and grants to cover 20% of college costs. But that kind of "free" money pays for only about 15% of college expenses, says Sallie Mae. Federal loans account for about 40% of financial aid.

So it pays to be hard-nosed and creative. You can always decide to spend less on undergraduate education by going to a state university, for example, and saving for grad school. Or you can work your way through school.

Advertisement
Advertisement

Most Popular

Turning 60 in 2020? Expect Lower Social Security Benefits
Coronavirus and Your Money

Turning 60 in 2020? Expect Lower Social Security Benefits

When you file for Social Security, the amount you receive may be lower.
July 30, 2020
These 2 Words Could Send Your Retirement Money to the Wrong Beneficiary
estate planning

These 2 Words Could Send Your Retirement Money to the Wrong Beneficiary

"Per stirpes" vs. "per capita." Making the wrong choice could cause an estate planning disaster.
July 30, 2020
Second Stimulus Check Update: HEALS Act vs. CARES Act
taxes

Second Stimulus Check Update: HEALS Act vs. CARES Act

When compared to first-round payments, the new Republican stimulus check proposal expands and protects payments for some people, but it shuts the door…
July 29, 2020

Recommended

College During COVID
Paying for College

College During COVID

Students and their families must be ready to adapt to the changes in the way they attend—and possibly pay for—college.
July 30, 2020
How COVID-19 Is Changing the Way Families Save for College Costs
college

How COVID-19 Is Changing the Way Families Save for College Costs

CollegeFinance.com's Kevin Walker joins our Your Money's Worth podcast to discuss how the global health pandemic is impacting the way families plan a…
July 28, 2020
This Olympian Has a New Goal: Closing the Wealth Gap
Financial Planning

This Olympian Has a New Goal: Closing the Wealth Gap

She encourages advisers to introduce students to financial planning.
July 21, 2020
7 Ways the Pandemic Will Change College Forever
college

7 Ways the Pandemic Will Change College Forever

Colleges and universities face steep budget cuts, enrollment challenges and new types of competition as a result of COVID-19. We cover the changes you…
June 19, 2020