Borrowing Wisely

The spring before you head to college, typically around mid-April, you should start to receive financial aid award letters from the colleges to which you applied. These outline your financial aid package—the amount you’re eligible to receive in loans, grants, scholarships and other aid. Sometimes the amount of aid offered by a college is more than what your family really needs. For instance, perhaps your living expenses aren’t going to be as high as what the school estimated.

While it might be tempting to take the full amount “just in case,” the smart move is to borrow only what you need to pay for true educational expenses. Remember—the loans you take out now will greatly affect your financial future, including your abilities to pay for an apartment, buy a car, own a home, travel or start a business. The award letter should explain the steps you need to take in order to request a lower loan amount.  

Effect on Future Earnings

After graduation, only about 10% to 15% of your salary should go toward repaying student loans. For instance, 15% of an annual salary of $50,000 is $7,500. When you divide $7,500 by 12 months, the maximum monthly student loan payment you should be paying is $625.

Effect on future earnings

Tuition Payment Plans

A tuition payment plan allows you to make monthly payments for 12 months or less toward college tuition. This can be a good option if you can’t make one lump payment at the start of the school semester but are able to afford monthly payments and don’t want to take out a loan.

To set up a tuition payment plan, talk with your school or contract with a tuition management company. If you elect to use a tuition management company, you may have to pay a fee of $50 to $100 for the initial plan setup. Though many plans are interest-free, others charge interest on the monthly payments. Whatever route you choose, set up automatic direct debit from your bank or credit union to pay your bill, to make sure you don’t miss a payment.

Work Study

The Federal Work-Study Program provides part-time jobs for undergraduate and graduate students with financial need, allowing you to earn while you learn. Although work-study paychecks are intended to offset educational expenses, they’re like any other paycheck in that you decide how to spend it. You can, however, request your college to apply your earnings directly to school-related bills. To be eligible for a work-study job, you must complete the Free Application for Federal Student Aid (FAFSA).

Even if you don’t qualify for the Federal Work-Study Program, you may still be able to find employment both on and off campus. Visit your school’s employment or career services office for help.

If you do decide to pursue work-study opportunities, here is what you should know:

  • Eligibility amounts depend on financial need, FAFSA and school funding
  • Not offered by all schools
  • Pay is usually minimum wage, though can be more
  • Undergraduates typically earn at an hourly rate; graduate and professional students may earn salaries

Finish in Four Years

Before enrolling at a college, inquire about the school’s overall graduation and retention rates, and those for your particular major. Graduation rates will tell you how many students complete their course of study and in what amount of time, and retention rates show how many students return for their next school year and don’t transfer or drop out.

Choose a school with a high graduation and retention rate to limit your own potential for dropping out or transferring (which may lose you credits). Also identify the expected length of study for your major, as not all are four years. Whatever the expectation is, strive to graduate on time. Once on campus, meet with your academic advisor at the beginning and end of each semester to ensure you’re meeting the requirements to earn your degree on time.

A 2014 report from Complete College America,* a nonprofit educational organization, found that only 19% of full-time college students earn their bachelor’s degree in 4 years, and that each additional year at a 4-year public school costs close to $23,000 in tuition, books, and room and board.

The longer you’re enrolled in college, the more costs you’ll incur. You’re also faced with lost wages that could have been earned with your degree.

*Complete College America. (2014) Four-Year Myth.

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