26 Jul How Much Can You Afford to Borrow for College?
Attending college can provide a tremendous boost to your child’s future earning potential, but how much should a family invest in the process in order to provide this benefit? There are many financial aid resources which can help cover the costs of a college education such as scholarships, grants, savings accounts and the federal work-study program, but there might still be a gap between what is needed and how much your family has available. That is when it becomes necessary to think about using federal or private student loans.
Using credit has become a normal part of life for some families. They have a mortgage and home equity loan, several credit cards, and lease their automobiles. But others watch every penny and try to borrow as little as possible. While deciding how much to borrow is definitely a personal decision, here are some parameters which might help make the discussion process a little easier:
• Get Rid of Your Assumptions: Don’t assume you know who will be responsible for making student loan payments when the bills come due after graduation. Many college graduates are surprised to find out that their parents actually expect them to make these payments. Many parents who became co-signers on private student loans are surprised to learn that they are on the hook for payments when their children don’t live up to their responsibilities. Talk about it now, before college even begins, so neither side has any surprises down the road.
• Get the Facts Now: In four years it will be too late to look back and decide that your family borrowed too much money in student loans. Decide now how much money you can afford to borrow and repay. Use available payment calculators to determine future student loan repayment amounts. Make projections for earnings potential for the parents and student, as well as future living expenses. Compare income against payment expectations to determine if there could be a problem.
• Get Real About Your Borrowing Habits: Don’t borrow the maximum amount of money just because you can, and then spend it foolishly. College costs are valid ways to use student loans, but many students end up using what they consider to be “excess funds” for living and entertainment expenses. This is where the real art of learning to budget and borrow appropriately is needed. Use solid financial forecasting skills to zero in on exactly how much you can afford to borrow and repay, and learn to live on a realistic budget during your college years.
Get more information on borrowing money for college in my new book, Secrets of a Financial Aid Pro. It takes parents and students through the life-long process of learning to manage money, discusses federal and private student loan options, and recaps the entire financial aid process. Order it now, and start involving children of all ages in discussions about how your family will need to budget, plan and pay for their college education.