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How to Decide How Much Money to Borrow In Student Loans

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You’ve experienced the joy of deciding which college you’ll be attending in the Fall, and now it’s time to determine how you’re actually going to pay for attending. 


You’ve calculated your budget, reviewed financial aid letters, and diligently put money aside in your 529 plan, and now you’re weighing how much to borrow in student loans and how much student loan debt is too much. 


Paying for college includes far more than tuition: fees, housing, a meal plan, books, a laptop, and other supplies. But should loans cover all your expenses? How much is too much?


How Much Should I Borrow In Student Loans?

After calculating how much college will cost, you can start the process of deciding how much money to borrow in student loans.


First, subtract any money you’re receiving from scholarships, grants, work-study, and federal loan programs from the total cost of tuition. Next, subtract how much you have in any 529 plans from that number. Finally, subtract any savings you and your family have. 


The remaining balance is what you’ll need to take out in student loans to pay for college. Be sure to not include costs such as travel in this calculation. You only want to use student loans to pay for tuition related expenses. 


Creating a plan for how you will repay the loans will also determine how much debt you should take on.


How Much Money Should I Borrow In Subsidized Vs. Unsubsidized Loans? 

Now that you’ve calculated how much you need to borrow in student loans, you can break it down further into how much to take in subsidized and unsubsidized loans.


There’s an essential difference between unsubsidized and subsidized student loans. Subsidized student loans don’t accrue interest while you’re matriculated in college, the former does. Federal loans also have a limit on how much a student can borrow, around $27,000 for all four years, dependent on if they are claimed as a dependent or not. 


For students who qualify, take out subsidized loans first. Then, take unsubsidized loans to avoid paying four years worth of interest they would accrue. 


If federal loans don’t cover the total cost of what you’ll need to pay for tuition, then you can look into private loans. Private loans should be your last option because they offer fewer repayment protections, some require payments while you’re still enrolled in school, and most start accruing interest while you are attending college. Some private loans also charge application or origination fees, hiking up your total cost. 


How Many Loans Should I Take?

Ideally, you will take one to two loans, depending on how much money you need to borrow. This includes any loans in your name or your parents’ name to pay for your four years of schooling.


Consolidating your loans has a few benefits, such as managing your debt effectively, reducing the need for multiple credit checks, and paying less interest.


Your credit will affect the interest rate on your loans. But if you apply for a loan and are rejected based on credit score, don’t fret. Your score will rebound quickly from the check, and you’ll be ready to apply to new loans soon. 


How Much Student Loan Debt Is Too Much?

There is no magic number of how much student debt loan is too much. The amount of appropriate debt will vary for every student and every family. 


Students will be approved for a student loan limit based on their entire family’s income. However, if your parents can’t or do not plan to help contribute to the loan payments now or later, it may not make sense to elect to take the full student loan amount that you’re allowed to. 


To decide what’s right for you, start by doing research on your ideal career once you graduate. Tools such as the U.S. Bureau of Labor Statistics Occupational Outlook Handbook can help. Edmit also offers salary information based on majors.  


You won’t want to take out a loan amount higher than your first-year salary, which should include all loans, private and federal, in the student’s name. So if you estimate your first-year wages to be $50,000, that’s the best total loan amount to take out in order to promote a sound financial future post-graduation. 


There may be some exceptions to this, such as if you plan to become a surgeon, and you can expect your salary to grow exponentially over time compared to your first year. This may not be the case in other professions, such as a teacher or journalist.  


Next, talk with your parents and if they plan to or can contribute to loan payments now and after you graduate. If parents can help will be different for every family based on your parents’ life goals and finances. 


When thinking about your overall debt, don’t forget to calculate the interest. If you need to borrow $100,000 to pay for tuition, keep in mind your interest rate will add a couple of extra hundred to thousand dollars on top of what you need to repay. 


What if My School Costs More Than I Should Take On In Debt?

After comparing and shopping for loans, if the total amount you should safely take out is higher than the tuition cost after your current scholarships, savings, and 529 plans cover, you still have a few options.


It’s a harder option to take, but you can consider another school that you were accepted to that was lower on your list, or a state school, and offered a better financial aid package. 


If your heart is set on the more expensive school, try applying for additional private scholarships through organizations you were a part of, your high school, town, or nonprofits. 


Next, in case you are not awarded any additional funds, consider a job off-campus to help pay for expenses during school. You can also create a strategy to reduce costs by selecting a less expensive meal plan or buying used textbooks.

Edmit's advice helps you to be better off after graduation.

  • Merit and financial aid estimates based on your student profile
  • Earnings estimates and financial scores for your college and major
  • Recommendations to save thousands on college

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