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Can I Afford My Student Loans?

Protecting Yourself With the Facts
By Paula Raven

When looking into college, most people talk to you about how to get the money to fund it – scholarships, federal student loans, private student loans.  But maybe the bigger focus should be on the cost/benefit of going to school.  Will the cost of the school or training program be more than you can afford after you graduate?

Warning:  This blog post contains *gasp* MATH. I will try to be clear so you can follow along and use these ideas for your own calculations.

  1. Be clear on the cost of your education.

First, you need to know how much your education is going to cost.  I am going to estimate that a four-year college will cost $70,000 to get a bachelor’s in English – approximately $17,500 a year for four years. You can typically find out the cost of individual schools by looking at that school’s website.

  1. Be realistic in your anticipated salary.

Second, you need to understand how much someone straight out of school makes in your intended field.  I use the website which is a great resource for this.  You can look up the job you want and the place you want to live.  Make sure you’re realistic with your job and salary prospects. You are not going to be a Director at a publishing company straight out of college or get a communications job in AnyVerySmallTown, Idaho. For our example, I amusing the position of copy editor position in Chicago, IL.  According to, a beginning communication editor in Chicago makes between $39,500 and $69,500 a year.  I will take the midpoint of that and use the average of $50,000 for our example.  Be aware that you may not get the ideal position in your field straight out of college, so you should be realistic with your expectations.

  1. Calculate your monthly income and your student loan payment.

Now you need to calculate how much your monthly payment will be on your loans.  You can use several different online calculators for this, like this one from Wells Fargo. you have $70,000 in loans at a rate of 7 percent with a term of 10 years, your payments will be $812.76 a month.

With a yearly salary of $50,000, and assuming you’re single in Chicago, your monthly gross income will be about $4,166 before taxes. You may want to manually subtract taxes, health insurance, and 401k deductions to get an even clearer picture of your monthly “net” take-home pay..  Although I did not use them in my example, experts agree you should take advantage of these benefits programs if offered by your employer.

  1. Find the right balance.

A good rule is that your student loan payments should not be more than 20 percent of your monthly gross income.  This ensures you have the ability to pay other bills with enough left over for some fun.  So, in this example, 20percent of $4,166 is $833. Your illustrative loan payment is $812.76.  This is tight, but you are good to go and still within acceptable range.


What if you went to a private school instead of a state school,or had to attend school longer and had loans which totaled $100,000?  Keeping everything else the same (interest rate and payment term), your monthly payment would be $ 1,161 a month.  You may think that you would still be OK with a payment of $1,161 since you would have over $3,000 a month left, but considering taxes (average tax bracket for young professionals is 25 percent of income- and rent (which averages $1,600 a month in Chicago –, car payments, food and other expenses, you’ll have little left over for an emergency or even a night out with friends.  You may be able to do this for a month, but you cannot sustain that tight of a budget.  Again, you should budget your student loan payment to be less than 20 percent of your expected salary.

Knowledge is protection.

Whether you are just starting on your college path or coming to the end, you’ll want to assess where you will be financially after graduation, checking these calculations to make sure you are still on track.  Also, if you want to continue your education past your undergraduate degree, these calculations can help you determine if you can afford the program you are interested in and/or estimate how much you will need to save instead of financing the entire cost of your education.

It is always better to know what your finances look like.  Now and for the future. Information is power, and knowledge is protection.