Deciding How Much to Borrow for a Student Loan
Once you have decided to apply for a Federal Student Loan, you must decide how much money you want borrow. Several factors need to be considered in order to reach your ultimate amount: cost of tuition and living expenses, loan limits, your existing financial commitments, other awarded financial aid, and how much debt you’ll be able to afford when you graduate.
Keep in mind that, unlike grants and scholarships, loans are not free money. Restrict your loan to the lowest amount possible. Appealing as it may sound to be financially set throughout college, partying with friends every night; that debt will accumulate. It will ultimately need to be paid back, by either your parents, or more likely, yourself, and your future entry-level salary may not be able to cover the excessive monthly payments.
Factors in Deciding a Loan Amount
Cost of Attendance
Most schools provide an estimate of what a student may spend on tuition, fees, room, and board for the year. It is meant to cover a wide range of students with different backgrounds and means, but it is usually a good starting point. You can look at this itemized list, and approximate how much money you would be able to pay Out-of-Pocket and with other aid; the remaining balance is what you would need the loan for. Make a budget for yourself based on your financial factors. Do not forget that you will be using this sort of budget for four or more years.
Loan Limits or Aggregates
Lawfully, you may only borrow from Federal Loans the cost of your school attendance, minus other financial aid you may be receiving, such as grants, scholarships, and your own savings. There are Loan Limits on how much a single person can borrow a year. Occasionally if you have financial obligations that could disrupt your education, that minimum cost could be appealed. It must not, however, exceed the maximum loan limit. Even more important, though, are aggregates, which dictate the amount of aid you can receive from the government throughout your entire college career.
Your Existing Financial Commitments
If you do have extenuating financial obligations, such as house or car payments, or credit card debt, do keep in mind loan aggregates. You do not want to pay for your entire tuition for the first two years in federal loans, and then realize you cannot afford the last two years’ bulk sums. Student loans are not meant to cover consumer debts; instead, it is a good idea to add any outstanding debt payments to your Out-of-Pocket budget. Student loans are first, and foremost, meant for education.
Other Aid Resources
Between Out-of-Pocket money, savings, grants, and scholarships, the total loan amount should be able to decrease. Grants and scholarships are not to be taken lightly, considering they are monetary prizes given to you based on your character or academic achievements.
You do not have to repay the money or interest on these prizes. Thus, you want to make sure to subtract any other financial aid you receive from the amount you want to borrow on a loan. You do not want to be in deeper debt than necessary. That also goes for any savings you have set aside for your education.
Debt You’ll be Able to Afford after Graduation
Make sure to research the job market to correctly project for yourself your imminent future earnings. Read the fine print on loans; check their repayment flexibility. Again, you will probably not be making bank straight out of school, even business or law school. Be conservative in your speculations. Remember that you know how much money you can afford now, but who knows exactly what you’ll have four years down the road.