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Borrowing basics

Borrowing for College: The Basics

What amount is the "right" amount to borrow for college? This is a difficult question students need to face before making an enrollment decision. While many students are eager to sign whatever it takes to go to their dream school, they often don’t understand how much it will cost them after they graduate. Others decide if they need to borrow for college, they just won't go. What is the right choice?

The reality is borrowing for college isn’t always bad - as long as it is done responsibly. College graduates earn much more than high school graduates (view average annual earnings by education level) so college is a good investment. But students should be careful not to borrow outside their means.

Only borrow what you absolutely need.

You don’t need to borrow the full amount listed on your financial aid award letter. It is tempting to borrow a little extra for something you want and don’t necessarily need. When you borrow money, you pay it back with interest, increasing your total costs. A good rule of thumb is to only borrow what you absolutely need and no more. Determine how you will meet your college costs by using our calculator.

Don’t ignore interest.

When you borrow, you pay back your loan with interest. It is easy to underestimate how much interest you will pay over the course of your repayment period. Use our loan repayment calculator or view our loan repayment chart to gain a better understanding of how much you will pay in interest on your loans and how it will affect your monthly payment amount.

How much will you earn?

Before you borrow, do your research on entry level salaries in your field of choice (The Bureau of Labor Statistics website is a great place to start). If you expect to make $25,000 a year and you have $50,000 in student debt, you may have trouble meeting your monthly payments. Take a look at example monthly payments here. Remember to account for all four years of your education when estimating your total borrowing needs. Too many students have a “borrow now, deal later” attitude that ends up getting them into trouble early after college.

How will your student debt affect your future goals?

When deciding between two schools, you may find you want to go to one more, but it will mean you have to borrow a lot more. Think about how that will affect your ability to reach your future goals. Maybe you want to purchase a car or a house after graduation. Will you be able to afford to do so with a higher student loan payment?

All loans aren’t the same.

Rates and terms can vary widely. As a rule, you should always explore your federal student loan options before seeking a private education loan, consumer loan, or using your credit card. Typically, you want to consider your education loan options in this order: