When you start school, no doubt you will have received some type of financial aid package, most likely including some type of loan. Student loans, unlike car loans or credit cards, don't have to be paid back right away. In fact, while you are in school, it is very easy to forget that you have borrowed money at all.
However, more than any other loan you borrow over the course of your lifetime, student loans must be paid back with diligence. Unlike car loans, credit card debt, or medical bills, student loans cannot be discharged in bankruptcy. In fact, no matter how poor you think you are, the government will continue to hold the loans over your head. If you do not pay your Stafford loans, for example, the government will take any tax refunds owed to you (and any other money due you from the government), until your loan accounts are paid in full.
Student loans are great methods of paying for an education that would otherwise be out of reach. Just remember, before you begin to borrow, budget. Figure out how much you need to live on, and borrow no more than the minimum. Another way of determining the amount of student loans you need to borrow is to look at your future salary. Be realistic. Err toward the low income range for someone in your field. Most student loan specialists advise you never to borrow more than one year of your future salary. If you borrow one year's salary, your loan payments would cost you 10% of your annual income. Most people who borrow much more than one year's estimated salary must struggle over the course of up to 25 years to pay the money back. Twenty-five years is a long time to pay for four or five years of education.
If you are an independent student, and you borrow the maximum Stafford loan limit of $57,000, your loan payment will be somewhere around $656 per month. You should make at least $65,000 per year to comfortably pay this loan back using the 10% rule. Your financial aid office can help you determine what your student loan payment would be for the funds you have already borrowed or for the student loans you are considering.
Student loans allow you to focus on your studies instead of working forty hours a week while trying to attend school. Just remember, student loans are loans too. They are no different than the obligation you owe to your credit card company. Budget accordingly.
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