Figuring out how much to take out in student loans for college can be tricky, but thinking before borrowing will pay off in the long run. Follow these three steps to determine the right amount for you.
Step 1. Estimate Your Full Cost
First, determine how much you'll need to pay for your education beyond the amount that your scholarships, grants, and family contributions cover. We'll call this amount your "balance." Don't forget to account for things like books, room and board, and travel expenses.
For a rough estimate of how much you'll need to borrow throughout your education, take your freshman year balance (not including the loans in your financial aid award) and multiply that by four (since most undergraduate degree programs take 4 years to complete). For example, if your balance in your first year is $10,000 (not including loans), you'll likely have to borrow at least $40,000 to cover the full 4 years—unless you're awarded some scholarships or you do some serious cost cutting along the way.
Of course, things can change. Tuition typically increases every year or so, and your financial need may change while you're in school. That's why this is just an estimate. Use our College Cost Planner to help determine your number.
Step 2. Research Your Earning Potential
Once you have an idea of how much you'll need to borrow, it's time to figure out if you can afford it. A good rule of thumb is to limit your total borrowing to no more than what you'll earn in your first year out of college, or keep your payments to less than 10% of the amount you'll earn per month at your first job after college (based on a 10-year standard repayment plan). That should enable you to pay off your loans within 10 years, if you maintain a reasonable budget.
Figuring out your future starting salary requires a little homework. If you know what you want to do after school, search the web to find entry-level pay scales for that field to get an idea of what you may earn during your first year out of college. Keep in mind that where you live can impact your earnings and your cost of living, so try to account for these things in your calculations.
Not so sure what you'll end up doing after school? Try searching for estimated starting salaries based on your major. If you're undeclared, you can estimate your salary by using the average starting salary for the class of 2017, which was $51,022 according to the National Associate of Colleges and Employers. Once you have your number, check out our Repayment Navigator to see what your payments could be under different repayment plans.
Step 3. Only Borrow What You Need
You'll likely be eligible to borrow enough to cover your school's entire cost of attendance (COA), but it's smart to limit your borrowing as much as possible.
Your financial aid award letter will show you the exact amount of federal student loan money you are eligible for. You can always choose to borrow less if you don't need the entire amount. Remember, you'll be responsible for paying your loans back—and when interest accrues, loans can cost you a lot more than you may realize.
Here are some dos and don'ts to keep in mind:
Do: Borrow to cover your tuition and room and board if you need to.
Don't: Borrow for things you want but don't need, like spring break or entertainment.
Do: Borrow if you have exhausted all other ways to pay for your education.
Don't: Borrow for spending money in lieu of working part time.
Basically, if you can pay for something any other way than borrowing, then you should do so. When you're tempted to use your loan money to pay for things that you don't need, like dinner at a fancy restaurant or a new video game console, remind yourself that you'll pay that money back with interest for years after you've stopped enjoying that meal or Xbox. If you live like a student while you're in school, you won't have to live like one when you're out.
Reduce Your Costs
Try to limit the amount you need to borrow by cutting your college costs. You can't reduce your school's tuition, but you can make college cheaper by focusing on what you need instead of just what you want.
Ask yourself these questions to see if you can save more this year:
- If you're living on campus, are there less expensive rooming options, like a triple instead of a double?
- Would being an RA get you a reduction in your housing costs?
- Do you use all of your meals each semester? If not, can you choose a cheaper meal plan?
- Can you buy your books used or online or rent them for less than they cost at the school's bookstore?
- Is public transportation available? If so, do you really need a car?
- Could you work a part-time job while you're in school to cover some of your costs?
- Have you searched for scholarships that could provide additional cash for tuition or books?
- Does it make sense for you to take only a couple of classes at a time and pay up front for them instead of taking out loans?
These are just a few suggestions. You may have other ways to reduce your costs, as well.
Federal Vs. Private Loans
You could save a significant amount of money by borrowing federal loans instead of private ones. The interest rates for federal loans are typically lower, and they offer repayment, deferment, forbearance, discharge, and forgiveness options that tend to be more limited for private student loans. In general, it's best to explore all of your federal loan options before borrowing private loans.
Remember, you aren't alone. According to The College Board, students and parents borrowed $106.5 billion in 2016-17. As long as you keep your loans manageable, you should be able to pay them down fairly quickly—and enjoy all they helped you achieve.