Responsible Student Loan Borrowing
Student loans are often referred to as "good debt" or "an investment in yourself" - but let's face it, borrow more than you can repay and the debt will overwhelm you, good or bad. How do you borrow responsibly? The rule of thumb we recommend is to borrow in total no more than your expected salary the year you graduate.
Why? Most federal student loans offer a 10 year repayment term. By keeping your borrowing to one year's salary, you're effectively dedicating 10% of your future income to repayment, which is a manageable amount of debt. Statistically speaking, graduates who have 10% or less of their income dedicated to debt repayment are able to manage their debts; those who exceed 15% of their income tend to default.
How can you tell what your salary will be at graduation? If you know or have a strong idea of what you'll be doing during life after graduation, look at the Bureau of Labor Statistics salaries in the area you'll be living or working in. The median salary in your field is a good estimate of what you'll be making when you graduate.
If you're not sure what you'll be doing when you graduate, use the median salary for all occupations.
Keeping your total debt to one year's salary or less will help you to manage your finances well after graduation, and let you enjoy the benefits of your higher education without the stress of burdensome loan payments. For more ideas how to pay for education creatively, check out these Graduate Funding Options.