How to Determine If You Can Afford a College

Determining how much student loan debt you can afford is one of the most important steps to evaluating prospective colleges. Knowing how much you can afford will save you from the miseries of loan repayments that you can’t afford.

According to a survey from PEW Research on college graduate perceptions of their financial experience with colleges, 57% of graduates felt that colleges no longer provide good value for the high costs of college tuition. Nearly half those that have graduated reported difficulty paying other bills as a result of student loan debt. A quarter of graduates found it harder to purchase a home and student debt impacted their career choice decisions.

With tuition costs escalating, the total amount of student loan debt now exceeds America’s total credit card debt. Prospective college students need to make better, smarter decisions about the careers, degrees and colleges that they pick. Determining how much tuition a student can afford is one area where families need to spend a great deal of time and consideration.

Here are two methods I’ve found, that calculate how much tuition you can afford. The first comes from Fox Business:

When choosing a school, Cunningham recommends that students brainstorm a few career options that interest them and research starting salaries. If the future monthly payments on their student loan are substantially higher than 8 percent of their future monthly salary, students should think carefully about whether they’re taking on too much debt.

Students also need to consider a school’s graduation rate as part of the larger financial picture, says Pamela Fowler, executive director of the University of Michigan’s Office of Financial Aid.

“You should be able to get out in four years or less,” Fowler says. “The longer you’re in, the more you borrow.”

The good news is that if students stick to Stafford loans and take out the maximum $31,000 that dependent undergrads are entitled to, they will be in a good position to pay their loans back after graduation, says Baum. The reason: Student loan debt is an investment, one that still has substantial payoff for students who finish college.

The other tip came from and proved a little more simplistic:

“The general rule of thumb for student loan borrowing is that the total amount of student debt should not exceed the borrower’s anticipated annual salary for the first year out of school,” says Allesandra Lanza, spokeswoman for American Student Assistance, a nonprofit based in Boston.

Both sound very reasonable to me (although I’d prefer Fox’s tip because math calculations are involved). However, both these methods rely on your estimation of your future starting salary. An overestimation of your beginning income is a dangerous mistake to make.

(Click link for an online calculator that helps you calculate if you can afford a college based on future income)

It is hard to estimate starting salaries for any job. Predicting if you can even obtain a career in the field your degree is in is even harder. For anyone serious in finding out how much they can afford in student loan, I’d recommend the following two additional steps.

Discount Based On Degree Field and Geography

You can find all manner of average and median salary data on occupations from the Bureau of Labor statistics or from graduate statistics from the college you are considering, but you need to know that these numbers are affected by geography, whether the career you are vying for is in high demand and starting salaries usually pay lower than the averages.

Statistics are often broken down into percentiles. For example, the tenth percentile will show you what the lowest 10% of wage earners are making. Unless you are entering a high demand field or plan on living in a major metropolitan area, base your expected salary on the lower percentiles instead of the averages.

Come Up With a Worst Case Scenario

Find a prospective backup career that does not require a degree. A large majority of students that begin college do not complete college. Of those that complete college, many in this recession are having trouble finding professional jobs. Find out how much student loan debt you can afford based on a fallback job that you are certain you could obtain and use it as a conservative estimate. It’s best to find a college that will come in below the conservative estimate and should, at least, give you pause before exceeding it.

It’s not hard to find a college graduate with mixed feelings about their financial decisions about college, but it’s easy to count yourself out of this group, if you bother to make the effort to plan ahead.


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