Federal Student Loans: How Much to Borrow?

It’s easy to put off thinking about repayment, but one day that time will come and, if you're unprepared, it can be quite scary. While there are a variety of repayment plans that can make borrowing affordable, it’s still important to carefully consider how much you borrow.

Here are three tips for calculating a proper amount:

1. Don't borrow based on future income.

Most people don’t know their career path at 18. It is not uncommon for people to change majors or even colleges before settling on career. So don’t borrow based on a first-year engineer’s salary unless you are absolutely sure that is what you'll be. It’s always best to assume a modest starting salary and borrow less.

2. Look at borrowing as a consumer decision.

When students and parents alike get in trouble with over-borrowing or emptying out savings accounts to pay for an education, it’s generally because they are looking at the price of college as non-negotiable. The higher the tuition, the better the education, right? This isn’t true. Look at value. How much is each school offering you in financial aid that doesn’t have to be repaid? Will they help you find a job? Do they have a variety of majors you’re interested in, in case you change career paths?

You’re more likely to choose a school that will help you along your career path. If you don’t know your ultimate career path, that’s okay. Keep undergraduate borrowing under $50,000 so you don’t feel so saddled with student loan debt. This will keep your career options open vs. picking a high-income career field, even if you don’t like the job.

It’s not always the schools with the lowest stated tuition prices that are the cheapest. A private school could offer you so much in scholarships and grant money that the price you have to pay--or borrow to pay--is less than public school tuition. Your high school counselor can help you with these strategies.

3. Consult career and financial services.

Too often students read ranking systems to pick a college, but calling a financial aid or career services office on campus will help you with both your career path and financial future. How? Career services can help you with information on where internships are available. Financial aid can help you with budgeting and maybe even tell you about additional scholarships you could qualify for. While calling around, ask for the student money management office or other office that specializes in budgeting. The answers you get will not only help you figure out your college finances, but also help you narrow down school choices to the ones that will give you the assistance you need to succeed.