Student Loans: How Much Is Too Much?

According to financial guru, Robert Kiyosaki, debts that don’t earn you money are considered as liabilities. Now what about student loans? Obviously, these loans are made so that students can graduate with a degree, get a stable job with benefits, and earn good money. So in a way, student loans shouldn’t be a liability right?

The problem now is, what if your student loan is bigger than your yearly salary? Then you’ll have to end up paying for your student loan long after you graduate. A liability? Sure sounds like it. This is where the question of “how much is too much?” comes into play.

There are definitely instances when both students and parents are careless when taking up student loans. The belief goes like this: “As long as the student can go to a good college, he will be able to pay off the loan anyway when he gets that good job.” The problem with this belief is, there’s a lot left to speculation. So how can we ensure that the loan amount we get can be realistically paid off within the first few years on the job?

Well, there’s really no insurance. But there is a recommended amount that your student loan would be better off not exceeding. Finaid.org reports that the average student loan in 2008 was $23,000. Aside from that, Sallie Mae also reports that students usually have a credit card debt of about $4,000. That amounts to $27,000 which most students cannot earn during their first year of working.

It’s advised not to go over the maximum amount permitted under the Stafford loan program, which incidentally is also $27,000. Also, it’s best to remember that if there really is no need to take on a loan that goes up to the maximum, it’s much better not to.

The Stafford loan breakdown is as follows:

– $5,500 for the first year
– $6,500 for the second year
– $7,500 each for the third and fourth year

If you can take on a loan that is less than that, then, the better. It is also advised that the amount of student loan taken should not exceed the projected salary of the student during his first year of working. Now that the figures have been laid on the table, it’s easier to realize whether that less expensive school would be a better option. Although expensive education can give more quality, it also pays to be realistic.


3 Steps To Getting Rid of That Student Loan

Finally, you’re fresh out of college and excited to start a new chapter in your life. But before you completely immerse yourself into finding a job and making it big, there’s just one little thing that needs attention. Your student loan.

Ok, so maybe student loans aren’t a little thing at all. In fact, it has now only dawned upon you that you’ve reached the time where you won’t be getting any money out of the loan, but instead you will need to find money to pay it off! Before your grace period ends, here’s what you can do to get your student loan in order. Oh and by the way, playing it dumb just won’t get you off the hook.

1. Find out how much you owe – This is certainly the first step you can take to paying it off. You have to know just how much you owe after all these years. You can do this by digging through your old boxes and folders, or by asking your parents if they still have those papers you signed in the beginning. If you’re not a very organized person, log on to National Student Loan Data System where you can see your student loans. Also, you can contact your university’s financial aid office, they can help you sort things out.

2. Choose a Repayment Plan – There are several ways for you to repay your plan. One is standard repayment. With this plan you are expected to pay a set amount to your lender every month, with up to 10 years to pay off your loan. Standard repayments usually require you to pay more than other repayment options, but this will also get you out of the loan quickly. Extended repayment plans still demand a set amount every month, but the term can be extended for as long as 12 to 30 years. Then again, interest will also rise. For graduated repayments, your payment method will start small but then build up to larger monthly payments. Although it may seem like a good choice at first, you can end up paying 1.5 times more than the original amount.

3. Find Other Ways to Lower the Amount – As the saying goes, everything can be negotiated. Although your student loan amount may be hard to budge, original and administrative fees may be easier to waive. Negotiate with a customer service representative what you can do to help make the burden easier. Maybe something as simple as paying online can help reduce your costs.

The sooner you clear yourself off the student loan, the better for you. The thing is, loans don’t only stop with education. You can eventually find yourself applying for a car loan, or a home mortgage, getting you stuck in the rat race faster than you can say cheese. So start being financially responsible as soon as you graduate. Smart decisions early on can help you live a better life in the future.