Student Loans: Understanding How Much to Borrow

Is your son or daughter graduating from high school in a few months? You may be feeling excitement and fear simultaneously. And for good reason: student loan debt is a $1.52 trillion crisis, according to Forbes. That’s trillion with a T. There are over 44 million U.S. borrowers with student loan debt.

In this guest post, Andy Kearns offers guidelines on how much to borrow in student loans if your son or daughter is college-bound. Andy is a Content Analyst for LendEDU and works to produce personal finance content to educate consumers across the globe. When he’s not writing, you can find Andy cheering on the new and improved Lakers, or somewhere on a beach.

LendEDU was launched in August 2014 by Nate Matherson and Matt Lenhard. LendEDU is a website that helps consumers learn about and compare financial products, including student loans, personal loans, credit cards, insurance products, banking products, and more. Their goal is to help customers make confident decisions, and their team is based in Hoboken, NJ.

Student loans help make it possible for many to attend college; on the other side of graduation, however, those students also find themselves in a lot of debt. From the Class of 2017, the average student loan borrower crossed the stage for their degree with $28,288 in debt. Currently, overall student loan debt in the United States is over $1.5 trillion.

All of this can end up translating to big problems for many graduates who either start out in entry-level positions, or who don’t understand how much their loans will cost after school. In fact, for many graduates, life milestones such as getting married, buying their first home, or starting a family get put on the back burner in favor of paying the loans back. There is hope, however; with a few tips and tricks, you can set yourself up for success before borrowing your first dollar.

How Much You Can Borrow

Students loans aren’t a free-for-all in which you can borrow as much as possible. Federal and private loans both have limits, and it’s important that you know how those limits are calculated. 

When you complete the Free Application for Federal Student Aid, or FAFSA, you’ll receive what’s called a Student Aid Report, or SAR. The SAR outlines your expected family contribution, or EFC. The federal government considers it primarily your responsibility to pay for your own education; the EFC is what the Department of Education expects that you will be able to contribute to school. 

Each school publishes a cost of attendance, or COA, that shows the real price for that school. This includes everything from tuition, room and board, textbooks, living expenses, and other fees. If you subtract your EFC from that school’s cost of attendance, the remainder is considered your financial need—and that is the maximum amount you can borrow in student loans.

How Much Should You Borrow

Once you know what your financial need is, you may be tempted to go get that amount in student loans—but you may want to think twice. In fact, student loans should be one of the last options you use to help finance your education as there are better options available that are better long-term ideas. 

Once you do have loans, a good rule of thumb to follow is your monthly payment should not exceed 15% of your monthly gross income. If you have an idea what an entry-level position is in your field, then you can get a ballpark figure of how much you can expect to make your first few years out of school. Your student monthly payments after graduation should not exceed 15% of your anticipated salary. Anything more than that, and you could potentially find yourself in financial trouble within 2 years after graduation.

Steps to Keeping Your Debt Manageable

Before taking out any loans, look into scholarships and grants; they’re essentially “free money” that doesn’t need to be paid back. Every dollar that you can get from a grant or scholarship is another dollar for school that isn’t accruing interest—and you won’t have to make payments on it later. 

Once you do have student loans, it’s important to keep track of what you borrowed. Be aware of interest rates, fees, and how much your payment will be after graduation. If you’re able to, make interest-only payments while in school, even if you don’t have to. Also keep in mind that if you don’t get the job you expect or want, you may be looking at less money each month to put toward your loans. Look at the College Risk-Reward Indicator to decide if the school you’re choosing is worth its cost—or if you’re merely paying more for a name that won’t net you a bigger salary.

When Borrowing Makes Sense—and Doesn’t

Over 60% of students graduate with debt. While it can be argued that student loans are an investment in your future, the truth is that they should be a last resort. There are better ways to pay for college that won’t leave you in debt as you’re trying to get hired in a new career field. 

If, however, you’re considering using your retirement funds, home equity, or simply don’t have the cash to pay for it without causing yourself severe hardship, then loans can be your best option. You may want to talk to a financial advisor before choosing what assets to use for school, and what to leave in your portfolio.


Taking out student loans doesn’t have to put you on a fast track to financial ruin—and it doesn’t have to consume your disposable income for the next 20 years. Planning ahead, borrowing only what you need, and managing your debt appropriately can not only save you money, but keep you ahead of the game.

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