Knowing Your Limitations on Student Loans
The smaller loans the better off you are in the future. Deciding how much money to borrow can be challenging. Here are a few tips that can help you determine what is best for you.• Once you start taking out loans, keep good records of your debt. It is easy to lose the reality of your debt, particularly if you have several loans.
• Parents should calculate their mortgage payments, car loans, education loans, credit card bills, and any other debt. Your total monthly payments for all of your debt should not exceed 35%.
• After graduation, students should not exceed 10% of their monthly gross income.
When determining the actual cost of loans do your calculations on a rate of 8%. Even though interest rates will vary, 8% is somewhat of a good average to use. If you are a parent of a student with a home equity loan your rates were locked in when you took the loan out. For every $500 you borrow it will cost you approximately six dollars a month to repay at 8% interest on a 10 year loan. If the student borrowers the maximum amount that the federal student loan program offers your monthly payments will be around $275 a month.
If you're making at least $30,000 a year, your payments should be manageable. Your salary should go up overtime making your loan payments even more manageable. Unfortunately, a student's needs increases after college. You may be ready to tie the knot and have children, buy a new vehicle, or purchase a home. Keep a good financial plan and remember your loan payments should not exceed 10% of your monthly gross income.
Contributing National Staff Writer
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