Student Loan Repayment

Budgeting your student loan payments is a big priority after graduation

For some graduates, student loan payments are their biggest monthly expense. Bigger than rent, food or car payments. Depending on how much you borrowed for college, your loan payments may feel like a ball and chain you have to drag with you everywhere you go. I have one friend who graduated from college eight years ago owing more than $35,000 in student loans. What's more, to get a foot in the door of his field, he had to accept a job that offered a starting annual salary of just $19,500. Despite eight years of steady raises, he still finds that even a cheap beater car remains well out of his reach.

The sad thing is his situation is not unique. As the cost of post-secondary education continues to climb, more and more young people are graduating from school to discover that the salaries offered in their fields don't adequately compensate them for the debt that they had to incur to get the necessary qualifications. This is not limited to journalists, librarians, school teachers or other chronically underpaid professionals. Doctors, lawyers and accountants are also feeling the student debt squeeze. Successfully factoring this monthly payment into your budget from the very moment you graduate is one of the smartest financial decisions you can make.

So how much will your student loans cost you each month? It will depend on your interest rate of course (most student loans land into the 3.5 percent to 8 percent range), but generally the rule is about $12 a month for every $1,000 in debt . This little formula is something every high school graduate should know before he or she starts thinking about how much to borrow.

Twenty-five years ago, the average college student could work full-time at minimum wage during the four-month summer holiday and earn roughly two-thirds of the total annual cost of school. If he or she did need a student loan, the total debt load for an undergraduate degree rarely reached the five-figure amount. Even when you factor in inflation, making monthly payments on, say, a $6,000 student loan in 1981 (based on the $12/$1000 formula) was still manageable for most professionals. Today, a student earning minimum wage would need to work full-time for more than a year (and save every penny) just to pay for one year of college. So massive debt loads are becoming a reality for more and more young people.

If you're in college now, keep in mind the $12/$1000 formula to give you a sense of what your debt will cost you each month when you get out. If you've already graduated and find you're paying far more than $12 for each $1,000 owed in student loans, it may be time to consolidate your loans or talk to your lender about extending your payment period.

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