April is Financial Literacy Month so NGPF will be featuring a new activity from our NEW! Activity Bank every day this month.  Given that it is April 1st and college admissions and financial aid award letters are landing in mailboxes across the country, many students (and their parents) are probably wondering “How Much Should I Borrow for College?”

In this NGPF activity, students are first introduced to the rule of thumb about how much to borrow for college based on expected earnings after college.  Students then access a recent survey that highlights starting salaries for recent college graduates based on their field of study.  This information shows how salaries vary based on college major which is important for students to understand PRIOR to making that choice.  This provides an opportunity for a class discussion about what factors a student should consider in selecting a major.  

Students then are introduced to a high school senior, Maria who is choosing between three colleges. The students help Maria by using a student loan tool to compute what her student loan payments would be at each school if she graduated from that school with the average amount of student debt.  The set of questions that follow make it clear that student debt should not necessarily be the only factor considered by students and asks students to list additional criteria that matter in college selection.

Next, Maria makes a school selection and the students calculate how much of Maria’s post-college budget would be taken up with student loan payments.  A final scenario assumes that Maria has to borrow more than the average student and takes out an additional $10,000 in private loans (which carry higher interest rates) and asks students to calculate whether this will be manageable for Maria in light of her expected post-college salary.

So, what learning objectives do we hope your students will accomplish through this lesson:

• Learn about a rule of thumb that describes the relationship between student debt and post-college starting salaries
• Understand the linkages between college majors and earnings potential
• Understand why students might have different levels of student debt based on the college they attend
• Calculate student loan payments based on student debt levels in the context of a post-college budget

Enjoy!

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.