School Loans After 40: How Much Should You Borrow?

You know you want a new career. But how much will retraining cost, and can you safely borrow that sum?

For Lillian Feliciano, 54, deciding on her new career was the easy part. Figuring out how to pay for the schooling she'd need to make the switch? That was tricky.

Struggling in the real-estate business, Feliciano yearned to work in the medical field. "I knew I wanted to help people, and when I heard about a program at Florida Technical College that would train me quickly, I was pretty excited."

Before enrolling, she looked at her options. Feliciano, who lives with her fiancé in Orlando, was eligible for some Pell Grants, federal grants awarded on the basis of financial need. To complete one course for medical assistants, and a second in medical billing to boost her odds of getting hired quickly—she'd still need to borrow $6,000.

While that might not sound like a lot—especially when younger students with six-figure debts are constantly in the headlines—taking on any new debt at a time when most people are more worried about maximizing their retirement savings is something career changers are thinking long and hard about. Feliciano's research told her that "even though I'll be starting at the bottom when I'm hired, I'm reasonably confident I'll earn in the $30,000 to $40,000 range." And that, she figures, will be enough to cover her loan repayments.

Rule 1: Borrow Conservatively

For years, the basic belief behind student loans has been that it's almost always "good" debt: Because it enables people to earn more income, it's considered worth the risk, and the interest. But the tight hiring market, high tuition costs and glut of graduates has called that premise into question, even for 20-somethings who will have five decades to recoup earnings lost to debt repayment.

In a perfect world, career changers would finance their education from savings. But circumstances are seldom ideal. "That's why it's important to borrow as conservatively as possible," says Carrie DeCort, vice president of Student Lending and Finance for Kaplan University. "Borrow only what you need for education, even though it's possible to borrow more. And do thorough research on the career you plan on starting, and what you might realistically earn."

That can be confusing, because while a career's median salary may sound perfectly reasonable, you'll likely have to work some years at a lower rate. "An entry level teacher will earn much less than someone with 10 years of experience," DeCort points out.

The first rule of thumb? Make sure what you borrow for your education doesn't exceed the amount you're likely to earn your first year in the new field. The second rule? Confirm that you won't have to set aside more than 10 percent of your future monthly income for student loan repayments.

With those general guidelines in mind, dig into the specifics of your own situation. Start with your FAFSA, or Free Application for Federal Student Aid, which also offers valuable help for adult learners. Check out online resources for help, such as If you're currently working, find out if your employer offers tuition reimbursement or scholarships.

And if you're considering tapping into retirement funds, such as your 401(k), talk to your tax advisor, who can explain the ramifications. Most, but not all, allow for loans. If you use the money for college, there's typically no penalty, but there are restrictions.

Go to the websites of schools that you might attend to check for scholarships. For example, Kaplan University is now offering a 50 percent tuition grant for students over 50 years old. Grants will be awarded to the first 50 eligible applicants who enroll. (The grant is equal to a 50 percent tuition reduction for a master's degree, bachelor's degree, associate's degree, or for-credit certificate.)

"You want to find as much free money as you can before borrowing," DeCort says.

Compare Apples to Apples

Some experts advise digging even deeper for a more accurate assessment, calculating your new career's Net Present Value, or NPV. "The trick is that the cost of your education—the tuition, the books, lost income if you'll be going to school full-time—are easy to calculate in today's dollars. But your earnings will be measured in future dollars, which are worth less," explains Eleanor Blayney, consumer advocate and certified financial planner. (Search for free NPV calculators on the Internet, or do it yourself on spreadsheet programs like Excel or Numbers.) "An NPV analysis will allow you to compare the cost versus the benefit in equal financial terms." If a 40-year-old can come out positive over the next 15 years, factoring in loan repayment, it's considered a sound financial move.

Such calculations are a way to help "you look ahead and peek around corners," Blayney says, "which is important because by midlife, people have plenty of blind spots." The further out you forecast, the iffier your situation becomes.

"While it's 100 percent certain you'll have to pay the tuition, and that your loan may cost $5,000 in repayment each year, it's not 100 percent certain what your earnings will be. What if it's not $75,000, but $60,000?" Or suppose you can't find a job in your new field for a year or two? Or you get hired, but are let go in a downturn a few years later? With each passing birthday, the odds of a career-ending illness or injury go up.

Blayney suggests meeting with a financial planner to discuss the financial ramifications of all those possibilities. "This is a big decision. Financial planning is about modeling for uncertainty, and it's important to understand how this might affect your retirement. You need to know if you'll be ready for that, and when."

For Feliciano, it seems worth it, especially since she is not interesting in retiring. "My mom is 72 and still working, and I plan to be the same way." For her, borrowing to go back to school feels like the right choice. "I figured, `You're never too old to do something you love. And I don't mind paying my dues.'

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