Student Loan application form © iStock

There are a few things to consider before you apply for student loans. Chief among these is a simple question: How much do graduates in your field of study make? Knowing the answer to this question can make all the difference when it comes time to apply for student loans.

“College students should plan on borrowing no more for their education than they can afford to repay in 10 years or less,” says Mark Kantrowitz, an expert on student loans, scholarships and financial aid. “Otherwise, it will start to interfere with other major life-cycle events.”

Ultimately, you want to make sure you’ll be able to pay off your student loans without it impacting other important life investments. In addition to this, however, there are other things to consider before you apply for any student loans. For example: Will federal loans be enough or will you need to apply for private loans? What are the grace periods like? What determines how much I pay each month?

What to consider before you apply for student loans:

  • Your job salary post-graduation
  • Federal vs. private student loans
  • Pay periods will impact your monthly payments
  • Grace periods
  • Refinancing vs. consolidation

Your job salary post-graduation

Remember Kantrowitz’s earlier piece of advice about not borrowing more than you can afford to repay in 10 years? There’s a good reason for that and iGrad CEO Robert LaBreche dives into this in greater detail. Essentially, by limiting your borrowing in such a way, you are able to limit your debt payments to no more than 10 percent of your post-graduation gross income.

“If they continue to make that salary over 10 years and they allocate 10 percent of their gross income to paying back their student loan, they’ll be able to pay off their student loan within 10 years,” LaBreche says.

That being said, what this amount of borrowed funding looks like will largely depend on your figuring out what graduates in your field of study make. Once you determine this, you can do all the necessary math Kantrowitz and LaBreche mentioned. And, by figuring this out before you apply for student loans, you can make a plan to pay off your debts without it impacting larger investments down the road.

Federal vs. private student loans

When you apply for student loans, make sure you focus on the federal as well as scholarships and grants before you look into private student loans. As a general rule of thumb, you should only opt for private student loans when you have exhausted all other funding options.

This is because of the fact that private student loans are much more rigid compared to federal. For example, there are fewer repayment options with private student loans and they don’t qualify for government-sponsored public service or teacher loan forgiveness.

Of course, none of this is to suggest that private student loans should be outright avoided. Rather, private student loans can supplement your existing financing opportunities when you apply for student loans.

Pay periods will impact your monthly payments

When you apply for student loans, one thing you’ll definitely want to consider is the pay period. This is the amount of time you will spend paying off your student loan debt. As we mentioned earlier it’s usually wise not to borrow more than you can pay back in 10 years.

Let’s say, however, you needed to borrow that same amount of funding and wanted to pay it off in 5 years. As a result of a shorter pay period, your monthly payments would be higher versus how much you would owe each month in a 10-year pay period.

Generally, shorter pay periods will yield higher monthly payments whereas longer pay periods will lower your monthly payment. But since the loan will spend less time accruing interest with a shorter pay period, you would pay less money overall.

Grace periods

Grace periods are another important factor to consider in shopping for student loans. Think of a grace period as a window of time post-graduation where you aren’t required to pay back your loans. Some borrowers take advantage of this window but, unfortunately, receive a rude awakening when the period ends.

If possible, you should maximize your time during a grace period. In some cases, making payments during a grace period can actually help diminish the amount of interest paid. This, in turn, could reduce the amount of time and money you end up paying back.

Difference between refinancing and consolidation

One last thing to think about when you apply for student loans is just how you’ll manage all of that debt. This is where we compare both refinancing and consolidation. At first glance, they don’t seem all that different, as they both involve taking out a new loan in order to manage current debt.

However, the borrower is often restricted in seeking better interest rates or repayment options with the consolidation route. As a result, there are fewer ways to reduce monthly payments as well as the overall amount of student debt. Refinancing is a little more flexible compared to consolidation as you can shop for better rates and repayment options.

Understanding the student loan crisis

“A lot of students get out of college not having the earning potential they think they will have,” LaBreche says. “When they’re in school, they are borrowing with rose-colored glasses on, thinking they’re going to get their dream job.”

Is it any wonder that there’s a student loan crisis when borrowers are borrowing more than their future careers can afford? LaBreche makes a strong point, but you don’t have to take his word for it. Let the numbers speak for themselves:

student loan debt

That’s the student loan crisis in a nutshell — lots of students borrowing lots of money and very few having a career trajectory that can afford it. Don’t be one of the 70%, not when all it takes is some careful consideration before you apply for student loans.

The bottom line

Don’t rush into anything when you apply for student loans. Always consider other avenues of funding (scholarships, grants, etc.) and make the most of grace periods when you’re paying off your debt. College is expensive and there’s no such thing as free money. If you’re going to borrow money, make sure you’re putting it toward a future career that can afford it. In essence, make sure your education can pay for itself.