Author: Emily Tierney 
When it comes to taking out student loans to pay for a college education (or higher), it’s hard to know how much debt to take on. It’s also hard to predict what kind of income your future career will bring and if you will hold that job at that income level. How do you know eight years down the road you won’t feel inundated in student loan debt?
There is a simple rule-of-thumb to follow that college counselors and financial advisers often recommend:
The appropriate amount to borrow in total student loan debt is your estimated starting annual salary.
For example, a student going to an in-state university to become a teacher may not want to take out more than $30,000.00 in student loan debt. $30,000.00 is the student’s estimated starting annual salary after graduating with a teaching degree. On the other hand, someone going for an advanced degree at a private university may be able to take on more student loan debt since their expected annual salary may be higher.
Why is estimating your future salary important?
If you have an estimate of how much you will make in your career after graduation and you don’t take out more student loan debt than that estimate, you should be able to comfortably afford your student loan payments. Let’s say you took out twice the amount of your estimated future salary in student loan debt; you may have cash flow issues down the road when you are in repayment mode.
How can you estimate your future salary?
One way to do this would be to utilize the resources at your college or university. Career centers on college campuses and/or career counselors may be able to help estimate future salaries. Another good resource would be the Bureau of Labor Statistics. The “BLS” is a Federal agency that provides all kinds of information about the US labor market. On their website you can browse wages by area and occupation.
What if the appropriate amount of student loan debt based on the rule of thumb is not enough to pay for your education?
This rule-of-thumb may be disappointing to hear! It may not be enough to cover all of your expenses with student loans every year, but it’s wise not to take on more debt than you can chew. You will thank yourself later for not taking on too much debt. Consider looking in to other ways to fill the gap between the total tuition and expenses and your student loans. Some ideas to fill this gap would be:
- work part-time
- research applicable scholarships
- see if you are eligible for Federal grants
- consider Federal Work-Study jobs
- consider applying to a more affordable school
- consider living at home (with parents) while in school
It’s hard to know what the future will bring, but by being conservative in how much debt you take on, you are doing yourself a favor in the long run.
This blog is provided by Windward Private Wealth Management Inc. (“Windward” or the “Firm”) for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. No portion of this blog is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Certain information contained in the individual blog posts will be derived from sources that Windward believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages.
Windward is an SEC registered investment adviser. The Firm may only provide services in those states in which it is notice filed or qualifies for a corresponding exemption from such requirements. For information about Windward’ registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov.