Smart Borrowing: Limit Your Loan Debt

Student Researching Educational Costs

Taking Out the Right Amount

These days, most students require some form of student loans to fund their college or graduate school education. The most critical step in applying for student loans is determining the right loan size for your specific needs and financial well-being.

Taking the full amount of loans for which you are eligible is not always necessary and does not always make financial sense (especially now that some loans, namely unsubsidized loans, will accrue interest while you are attending school. Borrowing money is always easier than paying it back; a little research and consideration can go a long way in ensuring that your student loan repayments are reasonable and manageable upon graduation from school.

Research Your Educational Costs

After determining how much money you are eligible to borrow for school, determine exactly how much you will need. In addition to tuition costs, you will likely need to consider the costs of housing, transportation, food, and other living and school-related expenses. Identify ways in which you can save in each of these areas, while researching additional sources of money for your education, such as grants, financial aid, scholarships and work-study programs. 

iGrad's got a few great resources that can help in this regard. Check them out:

Once you’ve determined how much your college experience will cost after using all other sources of payments for school, borrow only as much money as you will need.

Student Loan Repayment Calculator

Research Your Future Cost of Living and Income

In addition to considering the costs of your education, it is helpful to consider the cost of living you anticipate after graduating, as well as your expected income. Where do you expect to live after graduating? Will you need to buy a car after college? How much, on average, do professionals make in your field of study? Obviously, a lot can change over the course of your education, but having a rough idea of your future income and costs of living can inform just how much money is appropriate to borrow for school. iGrad's got a great guide to "Student Loan Repayment on a Budget" here.

Check out the table below for examples of monthly and total payment amounts based on an interest rate of 8.25% (the current maximum interest rate for undergraduate borrowers) and assuming a 10-year repayment term). Your actual interest rate may be different and you may decide to choose a different repayment plan.

Amount Borrowed Monthly Payment Number of Monthly Payments Total Paid Over the Life of the Loan
$5,500 $68 120 $8,113
$10,000 $123 120 $14,750
$20,000 $246 120 $29,500
$40,000 $492 120 $59,001
$57,500 $707 120 $84,814

Take a look at the table below for example payment amounts for higher loan balances, for example if you borrow for graduate or professional school. Our numbers are based on the 9.5% current maximum interest rate for unsubsidized loans for graduate and professional borrowers, the 10.5% current maximum rate for Grad PLUS loans, current unsubsidized borrowing limits, and assuming a 25-year repayment term. Your actual interest rates  may be different and you may choose a different repayment plan.

Amount Borrowed Monthly Payment Number of Monthly Payments Total Paid Over the Life of the Loan
$75,000 $665 300 $199,404
$100,000 $896 300 $268,908
$125,000 $1,137 300 $340, 974
$200,000 $1,845 300 $586,005
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