As you’re crunching the numbers, consider how much debt your student will be able to afford after college. Most students borrow to finance their education—to the tune of an average $29,400 per borrower for the class of 2012. But how manageable that debt is depends on the student’s career path.
See Our Story: The Right Way to Borrow for College
To avoid overborrowing, students should aim to keep total debt to no more than their anticipated starting salary after graduation, says Mark Kantrowitz, senior vice-president and publisher of Edvisors.com. You can go to www.payscale.com to see salaries in specific fields; use the figures as a guide for borrowing. For example, a civil engineering student can expect an annual starting salary of about $54,000, according to PayScale.com. Graduates in that field should be able to manage more debt than, say, an elementary education major, who can anticipate earning about $32,000 during the first year of teaching. (If your child doesn’t have a career path in mind, Carol Stack and Ruth Vedvik, authors of The Financial Aid Handbook (Career Press), recommend limiting borrowing to $32,000 total, the majority of which can come from federal loans.)
By limiting borrowing to your anticipated first-year salary, your graduate should be able to retire the debt in 10 years or less, avoiding the need for alternative plans that stretch the term of the loan and increase the total interest (see the accompanying story). For an idea of what monthly payments will be, use the loan calculators at www.finaid.org.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
-
Two Don'ts and Four Dos During Trump's Trade WarThe financial rules have changed now that tariffs have disrupted the markets and created economic uncertainty. What can you do? (And what shouldn't you do?)
-
I'm Single, With No Kids: Why Do I Need an Estate Plan?Unless you have a plan in place, guess who might be making all the decisions about your prized possessions, or even your health care: a court.
-
How Intrafamily Loans Can Bridge the Education Funding GapTo avoid triggering federal gift taxes, a family member can lend a student money for education at IRS-set interest rates. Here's what to keep in mind.
-
How an Irrevocable Trust Could Pay for EducationAn education trust can be set up for one person or multiple people, and the trust maker decides how the money should be used and at what age.
-
UTMA: A Flexible Alternative for Education Expenses and MoreThis custodial account can be used to pay for anything once the beneficiary is considered an adult in their state. There are some considerations, though.
-
Coverdell Education Savings Accounts: A Deep DiveWhile there are some limitations on income and contributions, as well as other restrictions, a Coverdell can be a bit more flexible than a 529 plan.
-
529 Plans: A Powerful Way to Tackle Rising Education CostsContributions to 529 plans grow tax-free and are not taxed when they are used to pay for qualified educational expenses for the beneficiary.
-
Five Ways to Save on Vacation Rental PropertiesTravel Use these strategies to pay less for an apartment, condo or house when you travel.
-
How to Avoid Annoying Hotel Fees: Per Person, Parking and MoreTravel Here's how to avoid extra charges and make sure you don't get stuck paying for amenities that you don't use.
-
Are Student Loans Being Forgiven or Not?Student Loans The House and Senate voted to repeal President Biden’s student loan forgiveness plan, but does it even matter?
