debt

Doubling over with debt

How college graduates will be able to pay back their student loans often boils down to how they choose their loans and manage debt. Allesandra Lanza, director of corporate public relations for the student debt nonprofit American Student Assistance, says students can minimize their educational debt burden by following a few basic rules. Before taking on massive loans, here are Lanza's tips for assessing how much debt you can handle.

Research annual salaries

How easily you can pay back student loans largely depends on your earnings after graduation. Some experts recommend that students keep the amount they borrow at or below their estimated entry-level salary. Lanza advises students to research the average starting salaries for jobs in their major, but also recommends that students stay flexible.

"You want to think about 'What is my estimated salary going to be?' But even given that, things change," she says. "... You can certainly graduate with a degree in something and then wind up working in a completely different field."

Lanza recommends that students not only look up salaries in their direct field of study, but also investigate other fields where those in their major tend to flock.

Investigate your school

According to the U.S. Department of Education, students attending for-profit institutions are twice as likely to default on student loans as those attending public colleges and universities, and they are nearly three times as likely to default as those attending private nonprofit schools.

When eyeing schools, Lanza recommends that students research "How many students graduate, what their success rate is for repaying student loans, how much student loan debt they take on and then also their earning potential. These are things that students might want to consider researching before they attend a school and before they take out loans."

Stay within federal limits

The Department of Education allows all dependent undergrads to borrow up to $31,000 through the Stafford loan program. That breaks down to $5,500 for the first year of school, $6,500 for the second, $7,500 each for the third and fourth and an extra $4,000 for any additional course work.

Federal student loan programs will have more options than private loan programs for managing the debt, adds Lanza. "With federal loans, in almost every case there really is a payment plan to fit any situation."

Lanza says that federal loans come with significant borrower protections including low interest rates, the option to postpone payments in cases of unemployment or financial hardship, the ability to extend the life of the loan, payment caps according to the borrower's income and loan forgiveness provisions. If you need to go beyond the $27,000 allotted to undergrads over four years, Lanza says to do some research.

"Find out what are my repayment options, what does happen if I run into trouble. Are there options for forbearance?" she advises. "Really look at the small print before taking on a private loan."

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