We've heard it for most of our lives: If you want to have a good job when you grow up, you have to earn a college education. There's no questioning the benefits of a college degree, but at what cost and to what lengths should you go to pay for your diploma?
According to this report by nonprofit organization American Student Assistance, 43 million Americans owe a whopping $1.3 trillion in student loans. The amount of student loans being carried by those just out of college can be staggering, and what's even more shocking is that knowing what they know now about their debts, 54 percent of student loan borrowers say they may have made different college choices if they had it to do over.
Student loans are not for the faint of heart, and with balances that mimic mortgage amounts in some cases, it's shocking to know that 69 percent of student loan borrowers either don't recall receiving any formal financial education on budgeting while in college, or they say they did not receive this training.
Simply put, we have 18-year-olds, 22-year-olds and even 26-year-olds who are uneducated in personal finances, signing on to take on tens of thousands of dollars in debt without being of aware of how these numbers will impact their lives (and ability to meet their goals) come graduation.
That said, if you could allow yourself a “do over,” or are in a position to go into a borrowing position better prepared, here are four questions to ask before signing on for student loan debt:
1. What are your career interests, and what are the average salaries for the job you'd like?
At 18, it's hard to know what you truly want to do when you grow up, but if you're leaning toward a specific major or profession, the best thing you can do is hop over to Payscale, Glassdoor or Salary and start to research potential salaries and incomes for the variety of positions available within your desired industry.
The big thing here is to be realistic. The likelihood of you making partner in a law firm or becoming a CEO or vice president right after graduation is pretty slim. Be realistic, and look for income ranges for entry-level positions, which is where you'll be starting.
2. Consider lifestyle expenses plus student loan payments. Will your new salary cover this?
Now that you have some anticipated income ranges in mind, work out a hypothetical budget for yourself post-graduation. You'll have rent, utilities, health insurance, groceries and hopefully no credit card or car payment debt. Back these items out of your "just graduated" salary (don't forget to take at least 20 percent off the top for taxes, as well), and see what you'll have left over.
Will that be enough to cover the amount you'll need to make under a standard 10-year repayment option? Will you feel strained, comfortable or weighed down by these numbers when you want to get married, buy a home and have kids in the future? What about also paying for dining out, travel and all the fun things you'll want to do with friends?
3. What are some cheaper alternatives to attending the high-cost college, while still maximizing your experience?
Sure, some of the best colleges come with the best career placement ratios, but is it really worth spending an extra $50,000 to $100,000 plus interest in order to possibly land a job? If the income range is the same across the board for the job you're after, a better college may look good on paper, but having an extra $100,000 in your pocket and taking advantage of programs, internships, mentorships and programs at a local, more cost-effective college will likely leave you happier and less financially strained in the long run.
Don't discount the benefits of community college and of taking the reigns on making your college experience as beneficial as possible. Most colleges offer extracurricular groups and programs as part of your tuition. You can maximize your experience by setting goals on groups to join, grades to obtain, professors to connect with, mentors to reach out to and organizations to volunteer with. You don't have to pay top dollar to land great connections.
4. Are you going to need to count on loan forgiveness programs to get by?
Yes, there are student loan forgiveness programs available. Should you be counting on these as a part of your pay-off plan? No. These programs change over time, and there is no guarantee of what will or won't be around in the future. In addition, there are questions you'll still be faced with, such as potential tax payments due on balances forgiven, how long you'll need to make minimum payments for, the amount of interest that may continue to accrue and more.
The best thing you can do for yourself when it comes to understanding if your student loans are worth it is to run the numbers on whether or not payments on the balance you'll need to take out will be manageable for you in the 10 years after you graduate. Use this student loan repayment calculator to run some hypothetical scenarios, and plug in the interest rates here on the Federal Student Aid site.
Mary Beth Storjohann is a certified financial planner and author of “Work Your Wealth: 9 Steps to Making Smarter Choices With Your Money.” She is the founder of Workable Wealth and works with those in their 20s to 40s across the country to help them make smart choices with their money.