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Avoiding Severe Debt: How Much Money Should you Borrow?

by Staff Writers

By: Erika Jaramillo

Unless one is fortunate enough to win a scholarship or qualify for a grant, most who pursue a higher education have no other choice but to take out loans in order to fund their entire (or partial) college education — this includes taking out money to cover tuition, books, and living expenses. But as tuition hikes continue to occur within American colleges, more and more loan borrowers are finding themselves in severe debt, according to the Huffington Post. In fact, Ohio State University reports that by 2014, the average student will cross the stage with $22,000 in debt —about a whopping 47% increase from 2000. And this doesn’t include students who chase their dreams of attending an out-of-their-budget private school, where naturally their debt is far worse.

All too often students find themselves in trouble because they borrow more money than what they actually need or enroll in a pricey university they cannot easily afford. While most do this because they think the money situation will correct itself after they earn their diploma, sometimes things don’t go accordingly to plan. Some graduates have a hard time finding employment while others land a low-paying job that doesn’t quite cover the costs of their loan bill.

So how does one avoid severe debt and take out the right amount of loan money? The first step is to use a financial aid calculator, such as the one provided by FinAid, and factor in how much you and your family can contribute to your education. As a rule of measure, students should borrow no more than "125% of the difference between net college costs and the amount of income and savings you can devote to paying those costs, rounded up to the nearest $1,000," FinAid suggests. This means that if college costs are $10,000 and you can contribute about $6,000, a good amount to borrow would be about $5,000 — this would leave $1,000 to cover the loan payment.

To know how much you should borrow, you also need to be realistic about your career choices, including the condition of the industry you are pursuing and your starting salary (it’s not enough to know how much you will earn eventually). If you are an aspiring writer, for example, it’s important to know that some make a mere $28,020 fresh out of school, according to the Bureau of Labor Statistics, and job competition is fierce. If you end up with a $1,000 loan note each month because you attended Harvard or went to a public university but took out more money than you needed, you will have an extremely difficult time trying to simultaneously pay your loan and make ends meet. In addition, you want to see whether your career is going anywhere. For example, is it a growing field? Be smart and take a glimpse into your future by checking out the U.S. Bureau of Labor Statistics’ Occupational Handbook. This guide provides an abundance of valuable information, including job outlook, salary figures, and work environment.

You also need to investigate whether the career you are pursuing offers any loan forgiveness programs. If you meet certain conditions and qualifications, some careers in health care, and public service will actually reimburse your loan either partially or entirely. Do not depend on these programs too much, however. Like stated before, you must meet certain conditions to qualify and every state’s tuition reimbursement program is not the same. But you can take this knowledge into account when assessing how much money you should or can afford to borrow.

Lastly, you need to make sure that you’ve exhausted all other ways of reducing the amount of money you borrow by evaluating other possible forms of income. For example, you could get a part-time job while at school to cover extra expenses, look into corporate sponsorship, or get a scholarship. After all, even if you did not get a scholarship or grant before college, you could still apply for several at anytime while enrolled in school.