NEW YORK (MainStreet) -- There's plenty of substance for the university debate team to mull over with a burgeoning issue for middle-class Americans: the high cost of a college education.
It’s one sector of the economy that seems to be inversely correlated to average income: it's growing more expensive as Americans are earning less.
Student loan debt is a burden that is growing every day. According to language in Congressional bill H.R. 4170, the Student Loan Forgiveness Act of 2012, the U.S. economy is saddled with near-$1 trillion in existing student loan debt.
In fact, total outstanding student loan debt officially surpassed total credit card debt in the United States in 2010, and is on track to exceed $1 trillion during 2012.
Excessive student loan debt is already impeding economic growth in the United States. Faced with excessive repayment burdens, many individuals are unable to start businesses, invest, or buy homes. Relieving student loan debt would give these individuals greater control over their earnings and would increase entrepreneurship and demand for goods and services.
Because of soaring tuition costs, students often have no choice but to amass significant debt to obtain an education that is widely considered a prerequisite for earning a living wage.
Statistics show that workers with college degrees do earn more on average that those without a degree. However, the most important question of all for prospective college students is this: How much should you borrow to pay for college?
College lending service Sallie Mae and its financial education arm, CollegeAnswer.com, have some helpful tips for students trying to answer this question, just in time for fall tuition bills to pop into mailboxes and email bins all over the U.S.
Talk to a trusted adult.
Someone who can share some real-world experience can be of help to a student borrower. “Perhaps that’s a parent or grandparent. Or, it could be someone in your school’s financial aid office. You’ll learn tips and gain valuable real-life perspective.”
Focus on finance – not fun.
Way too many college students factor in their lifestyle needs when they calculate their loan amounts. That’s a big mistake, Sallie Mae says.
“Don’t borrow more than you need. Remember that student loans are intended to finance your school expenses, not your lifestyle. In fact, your school will usually be asked to certify that the loan will be used for school expenses. Remember, every dollar you don’t borrow is a dollar — plus interest — that you don’t have to pay back later.”
Think about your financial needs after college.
Nobody wants to graduate with a mountain of student loan debt in his or her name. Before you go to college, make a list of all the things you want after you graduate, like a new home or a new car, and factor in how excessive student loan debt will stop you from reaching those goals. Keep that list handy when you apply for student loans.
Know your monthly debt burden.
Seeing how much you’ll have to pay for your student loan each month can help you visualize the potential strain on your finances, post-college. So make sure to break out the calculator and figure out how much cash you’ll be expected to shell out each month to pay back your student loan. As Sallie Mae says, “be sure you’re comfortable with your projected repayment amount.”
Also aim for less than you expect to earn your first year after graduation. If you expect to earn $35,000, keep your total loans within that amount, as a good rule of thumb. The U.S. Department of Labor has a handy salary estimator here.
Sallie Mae also says that your monthly student loan payments should be less than 10% of your starting salary after leaving school.
“For example, if you graduated with $25,000 in student loans (a typical amount for the 60-some percent of college grads who borrow), the monthly payments would be $288, so you would need a starting salary of approximately $35,000 to easily manage these payments,” says the lender.
Taking a good look at your college financing needs before you sign on the dotted line is good business and good budgeting. A little preparation now will go a long way in cutting excessive student loan debt down the road – and save you big bucks in the process. In fact, it might just be the best education you’ll ever get.
For more on student loans, read: