How Much You Should Borrow to Pay for College

Parents and son talking with financial advisor about borrowing for college costs.
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You need to pay for college, and you know that getting your education is the smart thing to do. But student loans are a tricky business. You may find yourself running into all sorts of problems and questions. You may be annoyed by the credit counseling that the schools offer at the beginning and end of your college career, but it is important to pay attention to that advice.

You should take this decision seriously. Here are five things you should do before you take out a student loan. You should also work hard to reduce the amount that you need to borrow since student loans can be debilitating. 

Apply for Financial Aid and Scholarships

You should apply for all the aid that you can receive. You can apply for Pell Grants in the spring for the following year. Even if you know you will not qualify, you should apply because it starts the process of applying for a federal student loan. You can apply for scholarships in your community, at your school, through your summer job and online.

You should spend at least an hour a week looking and applying for scholarships until you start school. Consider working to pay for school. Many jobs will reimburse you for taking classes related to your job. UPS has an excellent program for college students. Even if you don't qualify for a Pell Grant, you can help pay for school through scholarships and other grants.

Set Up Your Budget

If this is your first semester at college, it may be difficult to estimate your costs. You may want to go off of the costs estimated by the university, but many can live on a much lower amount. You should budget in your rent, utilities, and fun money. Do not forget tuition and the costs of books and transportation. This budget will help you to determine how much you need to borrow. You do not want to cut it too close, but you do not want to live too extravagantly either. Your college budget will do a lot to determine just how much you need to work or you will need to borrow to pay for school.

Estimate How Much Money You Will Need

You can do this by multiplying your budget by the number of months that you will be in school. Next, you should add in the cost of tuition and books. If you are planning for the whole year, don’t forget to add in the entire year’s worth of tuition and books. Then subtract from that amount the money that you have received from grants, scholarships, and any savings you may have. The amount that you have left is the amount that you should borrow. Do not take more than you need. You do not need to accept all the money for which you qualify.

Determine How Much You Can Earn on Your Own

One of the best ways you can reduce the amount you need to borrow is to work. You can choose to work several jobs over the summer and your breaks, or you can work during the school year. Although you may not be able to cover all of your expenses, you should be able to reduce the amount you need to borrow to cover your living expenses at least, and possibly part of your tuition. You may also consider participating in an Americorps program to help cover the cost of your tuition for a few semesters. 

Decide the Type of Loan You Will Use

Generally, it is best to go with a direct federal loan. Direct federal loan is the best option. The government sets the interest rates. You should borrow subsidized, then unsubsidized; generally, this is enough to meet your needs for in-state school tuition. If you are attending a private school or going to medical school, you begin to get into private loans.

You should be careful with the amount that you borrow through private lenders. The interest rate is much higher, and they should only be used as a last resort. You apply for federal direct loans with the same application that you use for a Pell Grant. You can apply for private student loans through your financial aid office or directly from your bank.