How to start thinking about education expenses
A college degree is an investment. Yet Americans now owe more on their student loans than they do on credit cards — and 11 percent of that debt is in some form of delinquency, according to the Federal Reserve Bank of New York.
You don’t have to become another delinquency statistic. Joseph Poletti, accounting faculty chair for the business program at the University of Phoenix Main Campus, offers six steps to help you determine whether the return on your education investment justifies the cost:
Build your budget.
Figure out how much you spend each month by totaling your credit card bills and bank statements. Next, add what you spend on your rent or mortgage, groceries, insurance, utilities, cable, cellphone, clothes, transportation, child care, and entertainment. Consider using an online budgeting worksheet to ensure you haven’t left anything out. Then, do the math on your current income and expenses to determine if you have money left over.
Figure out your education expenses.
Once you know how much room is in your budget, price your degree program. A college education can be a substantial financial commitment. But, Poletti points out, “studies have shown that college grads, on average, earn about $900,000 more in their lifetimes than high school graduates.”
Be realistic about your career options.
When researching your future field, look at the wages of entry-level jobs if you’re switching industries, since that’s where you’ll likely start. Although you may be reaching for long-term goals of say, a director- or chairman-level position, everyone has to start somewhere. Your post-graduation budget needs to be based on realistic expectations of immediate opportunities for someone who has just graduated.
Research what you could earn in that starting salary.
Poletti suggests reading the Robert Half® “Global Financial Salary Guide,” and University of Phoenix offers a Job Market Research Tool that helps you evaluate salary and education required in your chosen field. These resources will help you figure out if you can afford your expenses out of the gate, and justify your decision down the road.
Recalculate your budget.
With a practical estimate of your potential salary, update your budget. This will give you a true picture of how much money you’ll have each month for bills and school, and help you determine whether — and when — you’ll be able to pay off the cost of your education.
Know how much you can afford to borrow.
If you’ll need to take out student loans to pay for school, figure out how much you’ll need to borrow and then determine what your estimated monthly payments will look like. The University’s Financial Plan tool can help.
In addition, FinAid, a site that gives students strategies for funding their education, advises not to let your total student loan debt exceed your anticipated yearly starting salary.
You can also reduce the amount you need to borrow — every little bit helps! — by eliminating from your budget comforts like cable TV, expensive dinners out and twice-daily iced lattes. “Anything worth pursuing involves some level of sacrifice in terms of time and treasure,” Poletti says. “Without a college degree, you will never have a chance to pursue a career in certain fields.”