Getting the best bang for your student loan buck

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Make sure you don't take on too big of a student loan burdenThere’s no doubt that the rising cost of a college education, and the student loan debt that individuals and families are taking on to cover it, are hot-button issues right now.

But it’s worth remembering that the costs and benefits of different college degrees can vary widely; earning a bachelor’s and master’s in engineering might cost more than an associate degree in paralegal studies, but it will probably pay more, too.

Taking on debt to get an education that will pay off for a lifetime isn’t necessarily a bad thing, but how much debt is too much?

“A good rule of thumb is that total student loan debt at graduation should be less than your annual starting salary,” says Mark Kantrowitz, senior vice president and publisher of, a student resource center.

Any more than that, and students could face serious financial hardship later in life, he says.

“You will struggle to make your monthly loan payments, and will need an alternate repayment plan like extended repayment or income based repayment to afford the loan payments,” Kantrowitz says. “This means you’ll still be repaying your loans when your children enroll in college.”

Extending your payments often mean that you repay more, since you are are paying interest on your loans for an extended period of time. This only adds to the cost associated with your college education. When you are unable to make ends meet, and your interest adds up, it’s hard to think that college was a cost-effective way to get ahead.

Choose the right major

Kantrowitz says that it comes down to identifying majors that are “financially worthwhile.” Determining the “worth” of a degree involves making a fairly straightforward calculation. “Calculate the debt to income ratio,” he suggests. “If it is less than one, the degree is worth the cost from a financial perspective.”

In order to perform this calculation, take the amount of debt you expect to graduate with, and divide it by your expected beginning salary. has a list of occupations, and the cost to obtain a degree — along with median pay along with those occupations. The cost of becoming a news analyst, reporter, or correspondent is $52,596, and the median pay is $37,090, according to Bankrate.

Assuming you finance the degree entirely with debt, the calculation is $52,596/$37,090 for a ratio of 1.418. Since that is above the threshold of being financially worthwhile according to Kantrowitz, it might not make sense to pursue this degree — unless you can find ways to reduce the cost. I graduated with a communications degree, but I went to a smaller school and had scholarships to help me. My total student loan debt after my four-year degree was about $17,000. My job at the newspaper involved earning a commission (since I sold advertising) on top of an hourly rate. I made about $25,000 a year. In my case, the ratio was 0.68, passing Kantrowitz’s test.

There are plenty of other professions that are worth the cost, since the earnings can be enough to handle student loan payments. Kantrowitz points out that degrees in engineering, health care, science, math, and technology often make the cut. He also says that some non-degree professions, like electricians and HVAC technicians, are also financially viable.

In the end, your cost depends on the school you attend, and how long you take. An expensive school might not make sense if your degree choice isn’t going to yield a high enough starting salary to help you afford your payments.

(Photo: Flickr user astonishme)

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2 Responses to “Getting the best bang for your student loan buck”

  1. fabclimbers says:

    Glad this is all figured out. When I was starting college, I read that Accounting was going to be in demand. I was pretty good at it in school, so I pursued that as a career. Someone failed to include the fact that in order to hold a good job I would be working 60 to 70 hours a week, on holidays and many weekends at Christmas time not to mention every New Years day for the last 25 years.
    I have never been unemployed, but my family doesn’t even know who I am. My grown children don’t call me because I never spent enough time with them.
    I’d stay away from Accounting if I were you.

  2. My wife ended up with about twice as much debt as her salary, but luckily we’ve been able to work on paying them off aggressively with both of our incomes.

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