Lori’s Student Loans
February 26, 2010
On Lori’s list of long term goals is repaying her student loans. Its too soon to know with certainty the total amount of student debt Lori will have at graduation because she continues to apply for scholarship funds and may not need 100% of the student loan money she has been granted. She already has $17,000 in student loans for her undergraduate degree. Assuming she uses all the loans she has available to her, she would graduate in 2+ years with about $55,000 in student loan debt. Her monthly repayment on that amount would be about $630/mo.
From where Lori is right now that looks like a budget-buster. However, Lori is about 3 years away from having to start a repayment program (generally repayment begins 6 months after graduation) and she is anticipating not just merit salary increases but significant additions to her salary resulting from attaining her advanced degree. A rough but often used estimate is that a student loan repayment amount should not exceed 10% of gross monthly income. For Lori, that works out to an annual salary needed of $76,000. Lori already has researched average salary ranges for positions requiring a masters degree in her field of study and the reported average for the northwest is $80,000 – so far so good.
Should that salary prove tough to find after graduation there are other options. Lori could request an extended repayment schedule, repaying her loans over as much as 25 years instead of the more typical 10. While that increases the total amount of interest she would pay, it would reduce the monthly payment to less than $275/month – much more doable. If she is unable to increase her salary as projected she may instead qualify for an economic hardship writedown of a portion of the total debt she must repay.
The most prudent approach is the one Lori is taking, doing everything she can to minimize the amount of debt she incurs so that she has less to repay after graduation. Lori is doing her best to heed the advice many student financial aid professionals have framed and hanging on their office wall: “Live like a student while you are in school so you don't have to live like a student after you graduate.”