Managing Student Loans

65.7% of college students have to get student loans to pay for college, and the average student loan debt is $19,237 for a graduating senior in the United States according to the National Post Secondary Student Aid Study. This is no surprise considering that the rate of tuition increases 7% per year, and in some of the more prestigious colleges, students will have to pay well into six figures just to get their education. Even in-state rates for South Dakota, which is comparatively very cheap to practically everything else, students are still paying $40,000 for their education when one factors in dorm living and a meal plan. Most students will need to borrow some money on a student loan to get through school, but how does one know if they’re borrowing too much on a student loan in college? Is there an acceptable amount of money to borrow on student loans? Let’s find out.

There are a few times that you shouldn’t borrow money on a student loan. If you have a lot of any amount of money more than $1000 in the bank, you should use that to pay for college before getting student loans. You wouldn’t borrow money on a student loan to put money into savings. The mathematics are exactly the same as borrowing money while you have a pile of cash in savings. Additionally, if you have a very decent job in college, and can afford to pay cash for your courses semester by semester, you absolutely should. If you’re living the high-life and spending all of money you get in, you need a serious reality check. The money you’re wasting could be used to have much less student loan debt. In addition, you should never borrow on a student loan to pay for an apartment or general living expenses while in college. An undergraduate education is not the hardest thing in the world to do, you have time to work.

So let’s say that you use your savings, are working diligently while in school, have a few scholarships, but there’s still a bit of financial need left over and you’re considering borrowing money on a student loan. How much is okay to borrow? A good rule of thumb is that you should never borrow more than half of your expected annual income after graduation in student loans. If you’re a computer science major who can reasonably make $50,000 after college, it would probably be okay to get $25,000 in student loan debt. If you borrow more than that, you’re digging yourself into a deeper hole, and it will literally take decades to pay it off.

If you’re in a point where you borrow more on a student loan than you’d make in a year at your job, you need to quit school or find a way to borrow less money. Take a semester off and work if you have to. Borrowing money up to your eyeballs and beyond just so you can graduate on time is not a winning game plan. You’ll be in such a deep hole in student loans when you start out that you won’t be able to make any traction and move forward.

When you’re in college, borrow as little of money as possible on a student loan. You might have to work a bit more, and watch your spending here and there, but that’s okay! You might not have the most fun while in college, but afterwards, you’ll be miles ahead of your classmates.