Choose your college major carefully; it will affect student-loan repayment

Go to college to gain knowledge and become a better human being. Do what you love, and the money will follow. In today’s world, this dream needs a little substance.

The right college degree increases earnings potential through time. According to Bureau of Labor Statistics, the median income for workers with a bachelor’s degree is $54,756, an associate’s degree is $39,936 and a high school degree is $33,176. Student debt is having long-term impact that is crushing students and families; it is rapidly becoming our country’s No. 1 financial concern.

Graduates with average student debt find life’s necessities difficult to afford (groceries, rent, etc.) and non-necessities (vacations or eating out) virtually impossible to afford. For our young people, financial decisions made in the next few years will dramatically affect many of their basic choices during the next two decades.

As students prepare for the adventure of college, they need to be prepared to make the most of it. Now is the time for families to create realistic budgets and expectations for the college experience. Regardless of how interesting a major is, students must ask themselves some hard questions. Are you being realistic about what kind of salary you might receive when you graduate? What if you can’t find a job with your degree?

While college graduates typically earn more than high school graduates, different majors may have different employment and earnings potentials. Humanities majors have higher unemployment rates and typically earn less.

After one selects a viable major, the next important piece to consider is debt payments and starting salary (www.bls.gov/bls/blswage.htm). Many graduates are convinced they will draw a high salary, and they ignore the 13 percent unemployment rate for this age bracket. Underemployment also is a concern.

With a gross salary of $45,000, a new graduate would take home about $2,500 a month. Typical loan repayment takes 10 years, requiring a monthly payment of $260. If payments drop to $200 monthly, the duration of loan repayment increases to 15 years. Conversely, if payments are 10 percent of the gross monthly salary, the loan would be repaid in six years. Automated payments can decrease the interest rate by 0.25 percent, saving an average of $500.

If the major of choice leads to a low-paying job, take that into consideration when borrowing money. The average humanities graduate earns $1,625 monthly (after taxes) with a monthly loan payment of $229. Contrast this to a computer-science graduate who earns $2,696 monthly and carries loan payments of $265 a month.

Be realistic and conservative as to what you will earn with your degree of choice. Look at majors that are in demand now and will be in demand in the future, such as engineering, computer science and nursing – or essentially anything that confers a bachelor of Science degree. A degree in arts or humanities might fit a personal preference, but consequences of student loans must be evaluated carefully.

wendy.rice@colostate.edu or 382-6461. Wendy Rice is family and consumer science agent for the La Plata County Extension Office.

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