Planning for college is exciting – right up until planning for how to pay for it.
If you’re fortunate, you have the funding already. If not, you’re like the more than 43,000,000 others who have relied on student loans, to the tune of $1.6 trillion in outstanding current student loan debt. It is the highest amount of consumer debt today, behind mortgages, even before credit cards and vehicles.
65% of 2017 college graduates had an average student loan debt of $28,650. Most of them, or their parents, will be paying this debt until the grads are age 40 or more.
This excessive debt is changing our lives. Faced with loan payments immediately after graduation, young adults are delaying marriage, having children, and buying homes. Parents are faced with later retirement and reducing their quality of life, sometimes for the rest of their lives.
It pays to research a college wisely to determine how much you will have to pay before deciding to attend it. You can use the “net price calculator” available on college websites to help you figure your out of pocket expenses, after factoring in the grant aid you’re likely to receive from that school.
A manageable monthly student loan payment is estimated as 10% of your projected after-tax monthly income. According to the National Association of Colleges and Employers, the average salary for new graduates is $50,000. After tax and 401K contributions, an expected monthly income would be $2,792. A $279 payment for 10 years at current direct loan rates would translate to $26,800 in total student loans.
If you estimate you will exceed this amount, you may want to consider a less expensive school and/or other ways to pay for it. Better planning today will make for a lighter load tomorrow!
Laura Mickels has spent more than 30 years working for investors with both Wall Street and independent firms. CochranMickels Retirement Specialists provides personalized planning and investment services to individuals approaching and in retirement.
These are the opinions of Laura Mickels and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.