If you’re thinking of taking out student loans, you may be bummed at the idea of having to make payments on that debt once you graduate college. Or, you may simply be resigned to it. But you might take comfort in the fact that you’re joining the ranks of millions of borrowers who owe money in student loan form already.
But if you’re going to take out student loans, it’s imperative that you figure out exactly what that will mean for your post-college finances. Otherwise, you might end up sorely regretting your decision once your loan payments start coming due.
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You have to be in the know
The average monthly student loan payment today is $337. Your monthly payments may be higher, lower, or comparable, depending on the sum you borrow and the interest rate you end up with. But it’s really important to know what monthly payment you’ll be looking at upon graduation before taking that debt on.
In a recent survey by New York Life, 58% of respondents said they did not know how much their monthly student loan payments would amount to after graduation. And that’s a problem.
It’s also pretty surprising. You wouldn’t sign a lease for an apartment without knowing what monthly rent your landlord wants, right? Similarly, why wouldn’t you take the time to see what monthly student loan payment you’ll have to make?
One reason so many borrowers don’t have that information might be that they chalk it up to a future problem — one they don’t have to worry about immediately. But the reality is that if you’re taking out federal student loans and intend to stick to the standard repayment plan, you’re going to be making payments on your debt for 10 years. So it’s important to know what those payments will look like based on the sum you’re borrowing.
You’ll also want to make sure your monthly loan payments are likely to be manageable on an entry-level salary after graduation. Granted, you won’t know what earnings you’ll be looking at until you finish up college. But Indeed reports that the average salary for entry-level positions in the U.S. was about $40,000 last year.
You really don’t want your monthly student loan payments to go beyond 10% of your income. So that means you’d want to make sure you’re limiting yourself to payments of about $333 a month or less.
Of course, it may be that you’re pursuing a major that’s likely to lead to a more lucrative career than average. In that case, you might have the leeway to take on higher loan payments. But it’s important to know what you’re getting into either way.
Don’t let your loan payments come as a shock
You may not have to worry about paying off student loans until you wrap up your studies. But you don’t want to land in a position where your loan payments throw you for a major loop. So be sure to get that information before you commit to a pile of debt.
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