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PAYING FOR COLLEGE

Student Loans: How Much Is Too Much?

If you need to take out a loan to help pay for school, you’re not alone. In recent years, two out of every three undergrads have borrowed money for school.

 

But while few students can afford to pay for college without some kind of financial help, you need to be careful. Most of all, you should absolutely avoid borrowing more than you can reasonably repay in the future.

 

These guidelines can help you set an upper loan limit that’s manageable for you – so that when you do earn your degree, you won’t find yourself treading water in an endless sea of student loan payments.

Before taking on student loan debt, explore the alternatives

Make sure you exhaust all options for scholarships, grants and federal student loans before considering a private school loan. Scholarships and grants don’t have to be repaid, and federal student loans typically have lower interest rates than other forms of student loans.  (For more on this topic, see Financial Aid: What Are My Options?)

Estimate your future income – and then take it down a notch

One way to determine the amount of debt you can handle after graduation is to estimate what your future earnings might be. The Occupational Outlook Handbook from the U.S. Department of Labor provides information on hundreds of occupations, including typical income. But regardless of how much you think you’ll make in the years ahead, be conservative. As recent years have shown, the job market is unpredictable, and finding a job in the field of your choice might take longer than you think.

Don’t spend your entire income on student loan payments

Once you have an idea of what your annual income might be, you should be able to project your monthly income. Your monthly payment total (for all student loans) shouldn’t keep you from being able to cover basic expenses like your rent or mortgage, food, utilities, transportation, health insurance and other debt. But even if you think you can easily manage a student loan payment after graduation, don’t borrow so excessively that you’ll be paying it back for decades.

Remember, student loans count toward your credit score

Taking out a student loan is a big responsibility. Student loans are considered debt and will be reflected on your credit report, as will your repayment patterns. Failure to make monthly payments or repay your loans on time will hurt your credit score. While this may not seem important now, a credit score affects many things you’ll want and need to do in the future, including renting an apartment, buying a house or car, and even getting a job. In short, when you borrow money or use any form of credit, you need to manage it wisely.

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