April 26, 2022
Five Steps to Take Before Borrowing a Student Loan
According to recent data, 63% of students who graduated in 2020 from a 4-year public or private institution in Maine borrowed some amount of student loan to pay for their education. In fact, the average amount of debt for those graduates was $32,764. Whether that amount seems reasonable or not, the good news is that there are several important steps students can take before borrowing. These key strategies can help reduce the amount borrowed and will help to ensure a successful financial future.
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1. Exhaust All Other Funding Options
Have you completed the Free Application for Federal Student Aid (FAFSA) and finished the financial aid process at your school? Have you applied for outside scholarships? Have you talked with a financial aid counselor to ensure that you have accessed all of the financial aid available to you, including tuition payment plans? If not, these are important first steps to ensure that you are maximizing all funding sources available to you. It’s also important to remember that applying for financial aid is an annual process; be sure that you apply on time every year.
2. Research Your Future Salary
Before you borrow, it's critical that you fully understand the return on your investment, which includes researching your future salary. Visit CareerOneStop for information about annual wages by state, employment trends, skills needed, and much, much more.
3. Use FAME’s Debt/Salary Calculator
Once you’ve researched future earnings, the next step is to determine the maximum amount of student loans you should borrow based on your salary. In general, your student loan payment should represent no more than 8-10% of your monthly income. Another suggestion is that the total amount you borrow should not exceed your annual salary in your first year of employment. To learn more, visit FAME’s interactive student loan/salary calculator to determine the maximum amount you should borrow based on future earnings.
4. Reduce Your Expenses
Believe it or not, there are many college-related expenses that you can control. For example, do you have a roommate? How often to you purchase meals out or coffee? Perhaps you could save on travel expenses by leaving your car at home. One of the most important steps to reducing your expenses is to create a budget and stick to it. To learn about budgeting while in college and ways to save on daily expenses, we encourage you to sign up for our free online financial wellness tool at FAME.iGrad.com. There you’ll find courses and personalized content to help you strengthen your financial knowledge and decision-making.
5. Understand Your Student Loan Options
Since federal student loans have many benefits, including flexible repayment options, they generally should be considered first. Some families also choose to borrow against the equity in their home or take out private education loans. To assist you in becoming an informed borrower, FAME has developed tools and information to help you determine if you need to borrow and steps to take before you borrow.
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For more information, check out our recent webinar: |
Responsible Borrowing 101: Tools & Strategies to Support Your Students Before They Borrow
For most students, federal loans (and in some cases, private) are an integral part of financing higher education. Despite this reality, however, very few borrowers utilize all of the necessary tools and information to make informed borrowing decisions. In this webinar, participants learn about the key steps to take before borrowing, along with the many tools and resources available to support students as they navigate the student loan decision making process.
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For additional helpful information and resources, find previous tips on our website.
FAME's College Access and Financial Education Team:
Mary Dyer, Financial Education Programs Manager
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The Finance Authority of Maine (FAME) does not discriminate in the administration of any of its programs or in its employment practices on the basis of race, color, national origin, age, gender, religion, physical or mental disability, political affiliation, marital status or sexual orientation. FAME is an equal opportunity employer, provider and lender.
FAME provides links to other websites as a convenience and does not endorse or guarantee the content, accuracy or usability of such sites.
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