How Much Money Should You Borrow?
Many students borrow too much money and regret it later in the future. However, many people refuse to borrow money for school, and as a result, they never enter or finish college. It has been shown that people with bachelor's and advanced degrees make more money during their working lives than non-college graduates.
Therefore, many financial experts agree that individuals interested in attending college but unable to pay for it themselves, or receive financial assistance from their parents, should borrow a reasonable sum of money. It's usually recommended to borrow more than $5,000 dollars annually. Likewise, it's advisable to obtain a part-time job to decrease the amount of money students must borrow. Most college students graduate with a little more than $20,000 dollars in student loan debt. Many financial experts believe this debt load is not too difficult for most graduates to handle.
However, many students with part-time jobs, student loans, and modest living expenses often need more money to pay for college. The question then becomes what is a reasonable amount of debt to accrue under these circumstances?
The following are tips for students finding themselves in this position:
Start with the feds : Students can avoid borrowing from private banks or credit cards with high interest rates by only taking out Perkins or Stafford loans. New government regulation caps monthly minimum payments on Stafford and Perkins loans at 15 percent of their monthly wages.
The federal government will subsidize $31,000 dollars or less of Stafford loans for most students completing a bachelor's program. Students with families that have incomes over a certain level or those who do not have to report their parents' income can receive Stafford loans up to $57,000. Students should always be cautious of private loans since interest payments on these loans are due while students are still enrolled in school. Students borrowing money from a bank or other private lenders could end up paying thousands of dollars in interest payments before they graduate.
Most financial experts warn students against taking out loans beyond what the government will subsidize. They usually advise students needing more money to reduce their costs or attend a school with lower tuition rates. This is a great strategy for students planning on attending graduate school since most graduate programs are more expensive than undergraduate programs.
Match your income: Even students only obtaining subsidized government loans should be cautious about accumulating too much debt. This even applies to those intending to take advantage of the recently enacted repayment option limiting repayment to a percentage of income.
Students should be realistic about their earning potential following graduation. Therefore, future teachers should borrow less than students in medical school. However, graduates becoming teachers or other public servants often receive some loan repayment reduction. Many financial experts advise students to avoid taking out loans which would require them to have annual payments exceeding 10 percent of their expected annual income. Students entering fields where they will earn large salaries, such as engineering, should feel comfortable taking on more debt than their peers.
Many online services exist for students desiring to estimate their future monthly repayment minimums. Students making debt estimates before their freshman year should calculate their total debt load over five years since this is the average time it takes most students to complete a bachelor's program.
It's also recommended to avoid borrowing a sum total exceeding a student's projected salary the first year after graduating.