The fact is that 4 out of 10 families will have to borrow money for college, according to the latest report from Sallie Mae. And the most recent reports from Edvisors indicates that the Class of 2015 will be the most indebted ever, averaging $35,000 per graduate.
But simply borrowing to pay for college by itself isn't a bad thing. In fact, the small cost to pay for college could yield big rewards after graduation.
They key is to make smart decisions when taking out student loans. Here's five tips to make the decision making process easier.
1. Always Understand The ROI Of Your Education
First, before you borrow, you should always understand the potential return on your investment in your education. This means really assessing the cost to attend a certain school, and knowing what your post-graduation salary could be.
The fact is, according to Sallie Mae, students who borrow money for school typically spend more on the education as well. To think about that further, it also means that students who don't borrow spend less on their college education - automatically boosting their ROI.
A diploma without debt is well within your reach. Strategize a plan to defeat student loans now.
There are no hard and fast rules when it comes to ROI, but common sense should apply. A solid rule of thumb is to not spend more on your education than your expected after graduation income. If you're spending $100,000 on a 4-year degree, but will only make $30,000 after graduation, it doesn't make sense. However, spending $50,000 on college to make $60,000 after graduation can make sense.
2. Try Every Avenue To Lower Costs
Second, make sure that you're trying every possible opportunity to lower the cost you will pay out of pocket.
This means applying for the FAFSA, looking for college scholarships, and talking with your financial aid advisor. Remember, one of the biggest secrets of the financial aid office is that they have ways to help make college more affordable. You simply have to ask.
3. Don't Be Afraid To Work
Third, students shouldn't be afraid to work in college. When multiple experts were asked about the best tips for college students, one of the key findings was that students need to work during college. It's not a "nice-to-have" or "if-your-schedule-permits" type of thing. Working is a necessity.
Not only does working help generate income to help offset the cost of college, but it provides students with many of the soft skills that employers are looking for. In fact, the two key traits that employers are wanting from college graduates can't be learned in a classroom, they can only be learned on the job.
4. Federal Borrowing Limits Exist For A Reason
Fourth, borrowers typically learn the hard way that there are borrowing limits for Federal student loans. In 2015, first year dependent students can only borrow $5,500 and first year independent students can only borrow $9,500.
This may seem low, but that's a good thing. Student should always be looking to minimize the debt they take on, and they should attend schools they can afford to maximize their ROI.
And while it may seem like a challenge to stay under these limits and not take out private student loans, learn from these six graduates who avoided student loan debt altogether.
5. Parents Should Never, Ever Borrow To Pay For College
Finally, parents should never borrow money to pay for their children's college. There are many issues around parental borrowing, but the bottom line is that parents can't get a loan for retirement and they need to take care of themselves first.
If parents want to pay out of pocket, and they can afford it, that's different. But parents should never take out loans to pay for college. Beyond the additional borrowing, there are few options for repayment and no options for forgiveness when it comes to parental borrowing. This can put parents in a tough situation down the road.
Conclusion
Taking out student loans isn't a bad thing. It can make sense. Just make sure that you're following these five tips and are borrowing smart.
