Tips on How Much to Borrow in Student Loans
Your goal should be to minimize your overall borrowing – and here is how. Grab a pencil, a calculator, the financial aid award information from your school, and follow these steps to run the numbers:
What are your total college expenses? Check your award letter for the “total cost of attendance.” This will usually include tuition, room, and board. Add to this the cost of incidentals, such as books, travel, cell phone, any rental expenses, computer supplies, etc. - that’s the number you need to cover.
Who is paying what (and when)? Factor in whether parents or other family members are going to share the borrowing, and figure out how much each will carry. What is the post-graduation game plan? Will you take on more of the debt when you start working?
Subtract any “free money” items on your award letter – scholarships, grants, merit awards, etc.
Subtract all of the money from other sources – work/study, savings, summer job income, current income – and contribute as much as you can possibly afford. Include contributions from both parents and students for this step.
Subtract all other possible sources of cash. Maybe it’s time to sell some things on eBay. Remember to dig up old financial instruments, like savings bonds or CDs students may have been given when they were born. Subtract this number.
Make budget cuts everywhere you can and subtract the savings opportunities you find. A cheaper cell phone service, no cable, cheaper haircuts, etc. Limiting coffee purchases and other expensive retail treats can save literally hundreds of dollars per month! Be hard on yourself. If you get the right education, you’ll be living the good life in not too many years. Develop the financial habits that will help you for the rest of your life.
When you’ve calculated how much you’ll need to borrow:
Take out cheap loans first. Borrow first through the federal Stafford Loan program. (If you see “Perkins Loan” on the award letter, use that before the Stafford Student Loan. Perkins is a rarely-available, but very attractive federal loan.)
Compare private loan costs before you apply. IF – and only if – you have borrowed all the federal loans you can access for the year, consider private student loan options. They are not all alike – compare first payment due dates, interest rates, rewards programs. This all contributes toward a repayment situation that will meet your personal needs. Remember not to borrow now for future academic years – do it one year at a time.
Keep in mind that your education is going to span several years – borrowing can really add up, so proceed with caution. And when it comes to student loans, remember to shop around!
