The Biggest Mistake People Make With Student Loans
After giving over 60 presentations at colleges and universities across the country for the last 5 years, I’ve heard more than a few student loan horror stories. While these tales of woe are sad (I mean what tale of woe isn’t) many student debt disasters can be avoided by paying attention to one simple number.
Students can tell me everything about their student loans except the most important thing. They can tell me how much money they have borrowed. They can tell me how much money they are short each semester. Some of them can even tell me their interest rates. But none of these are what I need to hear in order to help them.
Here it is folks, the most important number when it comes to student loans: the monthly payment. Quite frankly I don’t really care how much money you borrow. (That’s only half; true but stick with me for a moment.) The interest rates on most student loans are decent so that’s not much of a concern either. What matters is whether or not you will be able to cover what you borrow on a month to month basis. $20,000 in debt is essentially an imaginary number. What affects your day to day financial life are those monthly payments. Payments which will dictate which apartment you live in, which car you drive and even if you should switch majors.
Staying on top of this number is easy. Simply visit the financial aid office every semester and ask this one question: “Based on the amount of money I have borrowed so far, what will my monthly payments be when I graduate?” The financial aid office can easily calculate this. When they reveal the magic number, be sure it is in line with your career choice. If they tell you that you’re on the hook for $2000 a month and you’re studying to be a social worker, some adjustments need to be made.