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There is approximately $1.75 trillion in student loan debt in the United States. With the cost of tuition, room, and board over $25,000 per year, there is a very real chance that your kids will need to get a student loan if they want to go to college.

The problem with student loans is they are presented to 18-year-old kids with little to no experience with how money, income, and debt works. Additionally, Federal student loans are available to everyone, regardless if the student’s projected future income makes it feasible.

Lastly, this stage of life is a time when most kids are still figuring out next steps. Who knows if they will finish college? If they do, will they ultimately decide on a different career path after graduation?

Just like other financial products, student loans are neither bad nor good. The goal is to use them wisely. If your kids are considering student loans, be sure they know these things:

Student loans need to be paid back.

It sounds simple enough, but we often think of paying back student loans as a problem for “future me.” We’d rather consume today even though our future will be negatively affected.

One trick to make smarter financial decisions is to have your kids connect with their future self. Research shows that people who actively think about their future selves make better financial decisions (not just with loans but also with saving money).

This can be as simple as having your kids think about life after college—where they will live, where they will work, etc. You could help them write out a future budget so they can see how expensive it is to live. Or you could take it a step further and have them write a letter to their future selves.

Your future payments need to be affordable.

This is crucial to determining whether student loans are a wise financial decision. If future loan repayments are not affordable, your kids need to consider alternative options.

First, help them figure out the average starting salary for someone in their desired field. You can use an online tool like this one.

Second, estimate their total amount of student loans upon graduating. If you know their first-year amount, simply multiply this amount by four. In addition, most people don’t start repaying their loans while in school. Any unsubsidized loan they receive will immediately start accruing interest. To account for this, increase your total loan amount by 1/5. Example:

  • $9,000 per year needed x 4 years = $36,000
  • With accrued interest = $36,000 x 1.2 = $43,200 projected loan balance upon graduating

Third, you can calculate their projected monthly payments and use rules of thumb to see their affordability. An online calculator like this one will assume the “standard repayment” of 10 years.

Using the example above, if we assume a 4% interest rate, monthly payments on $43,200 will be $437.37.

How do you know if this is affordable? Rules of thumb say to keep your total annual payments below 8% to 10% of your gross annual income. Based on this rule of thumb, our example student loan is affordable if the future income is at least $65,600 (8% of income).

There are other options to consider

Lastly, have an honest discussion with your kids about all the options available—especially if student loans don’t make sense financially.

This could be working through college, starting at community college, applying for scholarships, or applying to multiple universities. Talk with their college guidance counselor and the college’s financial aid department to get expert advice on all options and opportunities.

Again, student loans are neither good nor bad. They are simply a financial tool that can be used to open doors to a rewarding career. Because they are given to young adults without financial experience, using these methods can help your kids navigate their potential pitfalls.