November 5, 2008

What is the most you should borrow for college?

With college costs running $13,589 a year for public university or $32,307 for private schools it is rare to fund an education entirely out of pocket so many students end up taking on some debt. Some students end up taking on more debt than they can handle paying off after they graduate. That raises the question: How much student loan debt is too much?

From the FinAid.org site they said this: "
A good rule of thumb is that your total education debt should be less than your expected starting salary. If you borrow more than twice your expected starting salary you will find it extremely difficult to repay the debt."

They base this on how much loan payments will be and how much of someones income
is reasonable for someone to have to put towards student loan payments. If the payments eat up too much of your income you won't be able to handle them. This is the same kind of idea as not buying a house thats more than you can afford.

In addition they have calculator to help give you some guidance on how much student loan debt you can reasonably handle. Student Loan Advisor - Undergraduate Students
For example lets say you want to be a journalist. The advisor recommends that you not take out more than $29,555 in total student loan debt. They say for a journalism major: "
It is recommended that you borrow no more than $7,388.75 per year (for four years), for a total educational debt of $29,555.01 . If you borrow more than this amount, you may find your monthly loan payments too burdensome." The way they calculate the recommended maximum loan is based on the expected salary level of the profession and loan terms of 10 year period and 8.25% interest rate. You can throw most majors into that advisor and get guidance on realistic debt levels for the career.

There are also graduate student versions: Student Loan Advisor - Masters Students
and Student Loan Advisor - Doctoral Students

So if you're headed to college soon or planning on it in the future consider how much loan debt you should take on. Following the rule of thumb of taking student loan debt of no more than your expected salary is a good idea.

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