Borrowing for College: How Much is Too Much?

Sandra Guy,

Too much of a good thing can be bad, as Shakespeare demonstrated, and the axiom is true of student borrowing for college.

Students may believe it is difficult enough worrying about the big exam next week or whom to take to the spring dance. Yet students must stretch themselves and imagine a much greater consequence, years into the future, when they consider how much money to borrow to pay for a higher education.

After all, the average price of a private college has hit $88,872, and a public college, $23,344, according to the College Board's "Trends in College Pricing 2006" report. The implications are enormous.

The first step is to try to avoid borrowing in the first place, experts say. “Students should thoroughly explore scholarships, grants and community service awards before they begin borrowing for college,” said Marianne Ragins, author of Winning Scholarships for College and publisher of, based in Centreville, Virginia.

The next step is to set up a budget based on the salary you’ll likely make after you graduate from college, Ragins said. Students can check average starting salaries in their field at Web sites such as and the U.S. Department of Labor's Occupational Outlook Handbook.

Most importantly, students must view each dollar they borrow for college as a dollar that they will be unable to spend to buy such essentials as a car, a house, or to start a family, and a dollar that they cannot put into a retirement-savings account. “It’s important for families to work that through, to write down numbers and understand what you are signing up for,” said Rita Johnson, a financial advisor at the Millstone Evans Group of Raymond James & Associates, a brokerage firm in Boulder, Colorado.

If there is ever a time for discipline and independence, this is it, experts say. That’s because lenders are in the business of urging students to borrow as much as possible, and won’t warn of the financial consequences.

Also, beware a list of preferred lenders from college financial aid offices. By shopping around for lenders, students and their families may find better deals on their own.

After students come up with a number for the amount they expect to borrow, they should make sure the loan amount, plus other expected debts such as rent and car payments, do not exceed 33 percent of their expected future income, Johnson said. Free online calculators are available to help put together a budget and estimate future costs. If college-loan and other debts consume more than a third of future income, look for alternatives.

For example, your budget might look like this:

(Budget based on roughly $30,000 net yearly salary.)

Rent $550
Debt $130
Phone $45
Utilities $100
Cable/Internet $20
Food $100
Car/Insurance $205
Personal $240
Medical $100
Savings $110
TOTAL $1,600 (take home after taxes)

“It’s going to be each student’s decision – is it absolutely worth it to me to go to the University of Chicago rather than to a public college, or must I go to Juilliard or another outstanding ‘name’ college rather than a cheaper alternative?” said Johnson.

Students must take into account new laws and policies that make debts nearly impossible to write off. Student loans are no longer easily swept away under today’s tougher bankruptcy laws. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 extended non-dischargeable debt to student loans from private lenders, so they cannot be automatically written off. Instead, people seeking bankruptcy protection must prove that they cannot repay a student loan and still maintain a minimally adequate standard of living.

Furthermore, interest rates are going up on student loans, so students will pay more in the future to get rid of the debt. In June 2006, the interest rate on Stafford loans increased from 5.3 to 7.14 percent on existing loans and to 6.8 percent on new loans. The jump translated into $2,000 in additional interest payments for the typical undergraduate borrower who graduated with $17,500 in debt.

The idea that using credit cards to pay for college will be easier is a delusion with terrible consequences, said Robert M. Manning, author of Credit Card Nation and director of the Center for Consumer Financial Services at the Rochester Institute of Technology’s College of Business. Credit cards carry even higher fees than traditional student loans, leaving the unsuspecting to fall into a situation where it would take their entire lifetimes to pay off a credit-card debt, Manning said. Students who want to attend graduate school or another professional school after college must include those debts in any calculation of their future standard of living, Manning said.

“It forces people to say, ‘If I’m going to graduate with $50,000 of student-loan debt, how am I going to make it on a $40,000 salary?’” he said.


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