How Much Money Should I Borrow for College?

New, quick ways to figure out ahead of time how much student loan debt is too much.

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Thousands of college students have borrowed too much and doomed themselves to lives of big bills and collectors' calls. But thousands, perhaps millions, of other Americans have been so scared of debt that they've avoided or quit college altogether and likewise doomed themselves to financial struggles. The research is clear: A bachelor's degree, while no guarantee of success, is often a credential needed to win a good job, a raise, a promotion, or even employer-provided health insurance.

The answer then, most financial analysts say, is for students who can find no other way to pay for college to take out modest student loans—no more than $5,000 a year, say—while also cutting costs and working part time (no more than 15 hours a week during the school year) to limit the need for cash. The average recent college graduate with debt owes a total of $21,000, which analysts say should be payable for most of them.

But what if students cut their costs, work, and borrow modestly, and they still need more? How much more can they borrow without ruining their lives?

Finance experts say there are a couple of good rules of thumb: 

Start with the feds : One way to keep a reasonable ceiling on educational debt is to stick solely with the federal Stafford or Perkins student loans—and avoid any private, bank, or credit card debt altogether. Starting in July, the government will let students cap their payments on federal education loans below 15 percent of their income.

Most students are allowed to borrow up to $31,000 in Stafford loans to fund their undergraduate degrees. Adult students and those whose parents have been rejected for parent loans can borrow up to $57,000. But beware: For those who get "unsubsidized" Stafford loans, the interest builds up while the student is in college. That means someone who borrows the maximum $31,000 and takes the average five years to graduate will actually ending up owing more like $37,000 by the time the first bill comes due.

Greg McBride, a senior financial analyst for Bankrate.com, says that's more than enough debt for typical college graduates. McBride warns students who feel they need to borrow more than the federal maximum against the temptations of credit cards and private loans, which charge much higher interest rates. The better strategy, he believes, is to cut expenses and, if necessary, switch to a cheaper school. Those who attend less expensive schools for their bachelor's can borrow more to fund graduate school, which generally provides a more dramatic earnings boost, he notes. 

Match your income: The one-size-fits-all federal limits aren't right for everybody. Although the new income-based repayment option makes the federal loans more bearable, many—if not most—students should borrow less than the federal government maximum, says Sandy Baum, an economist who studies financial aid for the College Board.

The key, she says, is to align student debt with expected income upon graduation. That means future musicians, for example, would be wise to borrow less than, say, future engineers. (Future teachers and other public servants might have more flexibility because they might qualify for some loan forgiveness.)

Baum recommends that students, on average, keep their debt low enough that they don't have to spend more than 10 percent of their post-graduation pretax income on student loan bills. Of course, students who are on track to earn big bucks (as computer scientists, for example) can afford to borrow a little more.

Students can estimate future payments on Web calculators. Remember to multiply a freshman year's debt by five, since it takes the average college student five years to earn a degree.

Another rule of thumb that experts such as McBride and Baum often suggest: Cap total student debt below the first year's expected salary, which means borrowing less than one fifth of that amount each school year.

The problem with rules like these is that students aren't majoring in fortunetelling. How the heck are they supposed to know how much they will earn upon graduation? Luckily, there are several fast and easy ways for students to get reasonably good estimates of what students can expect to earn and afford.