We all know that college costs keep rising, yet in today’s world, a college degree is almost necessary for a well-paying job. That leaves many students wondering how much money they need to borrow to pay for college.
While there’s no set number for everyone, most financial experts say students should borrow no more than $5,000 a year. Luckily, there are some steps you can take to determine how much you should borrow.
Estimate How Much Money You Need
The first step in determining how much money you should borrow for college is figuring out what you need to spend. While it’s not easy to calculate this cost, it’s a crucial step.
Don’t make the mistake of looking just at tuition and fees and thinking that’s how much you need to pay for college. You also have to consider books, supplies, room and board, and transportation costs.
Most schools will show the cost of tuition and fees on their website, and you can find college cost calculators online that give you an idea of how much other expenses will run.
Determine Your Earning Potential
To make sure you’re able to pay back what you borrow, you need to figure out your future earning potential. Your student loan will be manageable if the total amount you owe is less than your expected starting salary when you graduate. For example, if your student loan debt is $80,000 when you graduate and your starting salary is only $40,000, you’re going to find it very difficult to pay back your loan.
Even though it’s hard to know exactly how much you’ll earn when you graduate, there are tools online that can give you a reasonable estimate. Research the published salaries of recent graduates from majors you’re interested in and colleges you’re considering. There are also free tools available online that will show you entry-level and starting salaries by employer, location, and job title.
Borrow Only What’s Necessary for Student Loans
Keep in mind that you don’t get free money when you receive a student loan. Not only do you have to pay back what you borrow, but you’ll also actually end up paying more when you consider the interest that’s added on to your student loan.
That’s why it’s essential to take as little as possible when you’re accepting a loan. Student loans are to cover tuition, room and board, and supplies. Even then, it would help if you tried to keep your room and board and other living expenses as low as possible, so you’re not misusing your student loan money.
The general rule of thumb from financial experts is that you shouldn’t take out more debt than you can repay in 10 years. As a result, you want to make sure your monthly student loan payments are less than 10 percent of your expected gross monthly income.
Consider Your Loan Options
When you’re applying for student loans, you have two main options: private and federal. Private loans could have variable or fixed rates, and they usually don’t have flexible repayment options.
Federal loans come from the government, have borrower protections with fixed rates, and include the ability to lower or even postpone payments if you run into financial hardship. As a result, it’s essential to research all your options and see which ones best suit your situation.
Consider Grants & Scholarships
When you’re determining how much you need to pay for college, keep in mind there are other funding sources besides student loans. This includes anything in a savings account you might currently have, scholarships and grants offered at your school or from private companies, and anything you might make from a part-time job. If you’re still deciding between colleges, compare which ones offer generous scholarships, grants, tuition discounts, and work-study programs.
Additionally, if you haven’t decided on a major, look into ones that are in demand and can lead to a relatively high salary. For example, the U.S. Bureau of Labor Statistics predicts that medical and health services managers will have higher-than-average job growth over the next seven years and have median annual salaries around $95,000.
Keep Student Loan Debt in Perspective
We’ve all heard horror stories about people drowning in student loan debt, but the truth is, these stories are uncommon. Before you start to think that any amount of student loan debt will ruin you, remember that manageable and well-researched amounts of debt can give you a variety of positive educational experiences, including real-life training for budgeting and money management.
If you’re curious about how much money you should borrow for college, keep these steps in mind to determine the amount that’s right for you.