Considerations for How Much You Should Borrow for College

Kelly Hernandez
A graduation cap sits under a stack of money.

The specific loan amount you should take out to attend college depends on a variety of personal factors, including your living situation, career goals, budget, and tuition costs. To ensure you don’t end up drowning in student loan debt after graduation, it’s important to take specific considerations into account before deciding on a loan amount.

When you take the time to calculate the loan amount you need, you’ll ensure you don’t put yourself into unnecessary debt that you must address after earning your degree.

Table of Contents

Research Non-Loan Options

Before applying for a loan, it’s important to explore options that could help you avoid student loan debt or reduce your loan amount. Grants and scholarships are financial assistance provided to qualifying students and they don’t need to be paid back.

The federal government offers grants for low-income students. To qualify, you must prove you have a low income by completing a Free Application for Federal Student Aid (FAFSA). Scholarships are available through schools, organizations, companies, and private individuals. Eligibility requirements vary for each scholarship but may be related to your major, gender, or location.

Federal work-study programs may also be available through your school. If you qualify to participate in one of these programs, you work part-time in your field of interest while attending school and in return, some of your tuition fees are covered.

You’re not required to pay back the financial assistance provided. While these non-loan options may not be enough to cover all your tuition and living expenses, small financial assistance opportunities may allow you to reduce the amount you need to borrow in student loans.

Create a Budget

Your budget plays a crucial role in deciding how long it will take you to pay off student loans and how much you’re able to borrow. It’s important to know what expenses you’ll incur when it becomes your responsibility to pay your loans back. When you add up your monthly expenses and the income you estimate you’ll earn, it’s easier to calculate how much you can afford to pay monthly for student loans.

Consider the expenses you’ll incur while in school, such as tuition, books, rent, transportation expenses, and dining expenses. If you’re working while in school, you can offset the income you earn against these expenses. However, if you’re not currently earning an income, consider the fact that you won’t be paying toward your student loans while in school.

Determine the Type of Loan

The type of student loan you qualify for also determines the amount you should take out. Federal student loans are generally associated with better loan terms, including a fixed interest rate and more relaxed credit score qualification guidelines. Some federal student loans offer unique repayment programs that are income-based, making it easier to keep up with payments, even if you have a large loan amount.

If you don’t qualify for a federal loan or the loan amount isn’t enough to cover your educational expenses, you may need to apply for a private student loan. Since private loans are secured through financial institutions and loan providers, the terms offered to you may vary based on your credit score, borrowing history, and loan amount.

Shop around to different lenders before agreeing to a private student loan. Compare interest rates and the monthly payments you’ll be responsible for. In addition to the loan term, consider whether the interest is capitalized and will increase your loan balance. Beware of student loan scams that include high interest rates and an increasing loan balance since they’re usually extremely hard to pay off after graduating.

Consider Future Earnings

The income you earn when you graduate should be a factor you consider when deciding how much you should take out in student loans. It’s important to review the monthly student loan payments you’ll be responsible for after you graduate. Ensure your budget and income allow you to comfortably make these monthly payments.

When you know your student loan terms and a rough estimate of the salary you think you’ll earn when you graduate, use a loan repayment estimator. Enter the details of your loan, expenses, and income. The estimator helps you determine how long it will take to pay off your loan and if there are other options that are more financially beneficial to your situation. If the monthly payments you’re responsible for seem unmanageable, you may need to look into other financing options for school.

Consider Future Occupation

Your future occupation may also have an effect on how much you can afford in student loans. There are several programs that allow your federal student loans to be forgiven but eligibility is based on your occupation.

For example, if you become a teacher after graduation, you may qualify for the Teacher Loan Forgiveness Program or another type of teacher loan forgiveness option. If you become a nurse after graduating from college, your student loans may be forgiven through the NURSE Corps Loan Repayment Program or one of the many other nursing loan forgiveness programs available.

To qualify for these programs, you must meet strict eligibility guidelines. In some cases, you must work in the selected occupation for several years before your loans are forgiven. Some programs also require you to have completed a specific major, be working full time, or have earned a certain license to qualify for loan forgiveness.

When deciding how much to take out in student loans, consider the cost of attending school and your current income. After you look into other non-loan options, only commit to a loan if you feel comfortable with the terms and repayment plan. Analyzing your budget and potential future income will help you determine the loan amount you can afford.

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