Here’s how to find out how much you can afford
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Impact of debt ‘not obvious’ for young borrowers
As tuition fees have risen, the average loan balance has tripled since the 1990s, from $10,000 to $30,000. Some 7% of borrowers have more than $100,000 in debt.
“Young people, most of the time we’re dealing with high school kids, they’ve probably never borrowed before,” Bair said.
“Because we’re not doing as good a job of financial education as we should…the basics of debt, and what it means, aren’t obvious and simply understandable to students – and sometimes their families. “, she added.
Decide: How much student debt is affordable?
Before taking out a student loan, you should have an idea of how much debt you can handle, rather than looking at how much money you can borrow, said Bair, a member of the CNBC Invest in You Financial Wellness Council.
“A lot of students don’t think about what they can afford. [and] how much they will earn,” she said. “They’re not encouraged to think that way.
To that end, Bair has worked with the Peter G. Peterson Foundation, which recently announced a new student debt initiative. The nonpartisan foundation is “dedicated to raising awareness and accelerating action on America’s long-term fiscal challenges,” according to its website.
Part of the program includes an affordability calculator, which takes into account your major, your college, the year you will start your studies and where you want to live after graduation.
Where you live after college matters because it determines your spending and potential income, Bair said.
The calculator then tells you the maximum amount you can borrow while still being able to pay.
“This will empower students and their families as it will give them an aggregate figure of the maximum amount of debt the student should have upon graduation,” Bair said.
Students can then take the number to college financial aid offices to determine if it works. If not, you can apply for additional scholarships and work-study arrangements that could help offset costs, she suggested.
If a college can’t work with you, find ones that can.
“It will also allow you to be a competitive buyer in terms of college financial aid,” Bair said.
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