1. Student Loans: Introduction
  2. Student Loans: What Can You Afford To Borrow?
  3. Student Loans: Federal Loans
  4. Student Loans: Private Loans
  5. Student Loans: Loan Repayment
  6. Student Loans: Repayment During Financial Hardship
  7. Student Loans: Paying Off Your Debt Faster
  8. Student Loans: Federal Loan Consolidation
  9. Student Loans: Private Loan Consolidation
  10. Student Loans: Conclusion

You just received your financial aid award letters from the financial aid offices of the colleges you are considering attending, and you're approved for enough in student loans that you won't have to get a part-time job. But don't plan your study/party schedule until you've accounted for all possible expenses and verified that your future loan payments won't be too burdensome as you begin life after college.

In this section, you will construct a budget, taking into account all sources of income and your expenses (from tuition to entertainment), and learn how to set limits for student loan borrowing based on your career choices. (Learn everything you need to know about budgeting in our special feature, Budgeting 101.)

Constructing a College Budget

The first task in constructing a college budget is to make sure you're ready to construct a realistic budget you can stick to while you are in college. This isn't just a matter of including all possible categories of spending. You need to be honest with yourself about the amount you will spend in each category.

For example, let's say you decide you only need $100 a month for groceries. In theory, you could eat ramen noodles and macaroni and cheese every day, then splurge on the occasional fast-food hamburger. Skipping the health factors involved in the above diet, would you actually stick to this minimalistic meal plan? (For more tips on shopping cheap, see 22 Ways To Fight Rising Food Prices.)

Sit down with a close friend who is already in college and/or your family to list all possible expenses and set realistic amounts for each category.

Print the table below and fill in the numbers you estimate for your monthly costs in the first column. Next, request a phone or in-person consultation with a financial aid officer or money management staff member from each of the universities you are considering. Put the new numbers in the university estimate column.

Print a budget for each university you call. If you know someone attending that university, put their numbers into the next column. A great way to get realistic budget numbers for a particular university is to ask the student staff in the money management office or financial aid office what their students spend on a monthly basis. Finally, compare the numbers you've gathered with your original budget in order to create a revised budget column. (For more information on budgeting read The Beauty of Budgeting.)

First Semester of School Estimated Budget
Expense Categories Your Original Budget Budget Based on University Staff Estimate Budget Based on other Student\'s Expenses Your Revised Budget
Tuition and Fees
Housing and Utilities
Groceries/ Meal Plan
Books/School Supplies
Landline/Cell Phone

Applying Your Budget to the Affordability Dilemma

Now that you have an approximate total from your revised budget column, you can begin to calculate which colleges you can afford to attend. From your revised semester total, subtract any family or personal contributions you are going to use toward that particular semester, as well as any grants and scholarships you will receive. The final figure is the amount you will need in student loans or from a part-time job to make up the difference.

Reliable Workplace Income

Is the number small enough that you could easily earn enough money to make up the difference? If not, how much would you need? Part-time work can help you with this dilemma. Call the career centers at each university you're applying to and set up a phone appointment to discuss available part-time jobs (and the average local wages) for students like yourself. This should help you devise some realistic expectations for part-time income. (Find out how to fill in what your savings won't cover before dipping into debt. Read 5 Ways To Fund A College Education.)

In addition to part-time jobs, ask about work-study and co-op programs. Work-study jobs are part-time jobs awarded by the financial aid office. In a co-op job, employers in certain fields hire college students to give them on-the-job training as they pursue their educations. Working in co-op positions gives you real-world experience and an edge over other students when it comes time to find a job. An added benefit is that your co-op employer may offer you a position when you graduate.

Finally, talk to the academic advisor in in the department of your prospective major and ask how many hours you can reasonably work and still have time to study. Most advisors will be able to tell you how many hours are expected to be devoted to your courses beyond the classroom. The students working in the office who are studying within your major can also help you with this question.

While reducing your student loan borrowing by earning a few dollars from a part-time job is helpful after graduation, you don't want to sacrifice your grades and overall college experience for lower student loan payments.

Researching Your After-College Income

After you've calculated the final amount you'll need to borrow, you'll still have to determine whether your post-graduate income will be enough to meet your monthly loan payments. Contact your prospective college career office to get current figures regarding entry-level employment.

For example, if an entry-level marketing job in your area has an average starting salary of $40,000, and you have $20,000 in student debt at a fixed-interest rate of 6% when you complete college, you'll have a monthly payment of approximately $222. (For $40,000 in student loans at the same interest rate, your monthly payment would be roughly double, or $444). As a single person making $40,000 per year, you'll probably take home between $2,000 and $2,600 a month after taxes. Based on these expected income numbers, construct a budget for after you graduate.

To find housing costs for the cities and neighborhoods where you'd like to reside, search apartment rental sites, call your university off-campus housing department or ask friends who currently live there. (Learn more about finding a place to live in Easy Ways To Cut Rental Costs.)

These numbers don't have to be exact – no one has a crystal ball to know exactly where they'll be in four years. However, constructing a post-graduation budget gives you a rough idea of how much you can afford to borrow for your education.

Print the budget sheet below to fill out as you gather information.

Monthly Post-Graduation Budget
Expense Categories Budget Based on Internet Research Budget Based on Friends Who Live in Desired Area Budget Based on University Money Management Office Your Revised Budget
Student Loans
Housing and Utilities
Personal Care Items/ Grooming
Transportation/Car Payment/Insurance
Landline/Cell Phone

Hard Choices – Reality Check

The sad truth of borrowing based on what you can afford to comfortably pay after graduation is that you may have to rule out your "dream university." However, opting for an affordable university – where you can enjoy extra-curricular activities because you're not working every moment of your life to cover tuition – might be the wisest choice. After all, a more affordable university won't leave you saddled with debt for years to come. (To learn about a savings plan that can help you save for more expensive colleges, read A 529 Plan Fit For An Ivy League Education.)

Also be aware that some expensive colleges have huge budgets for scholarships, including some full scholarships. If you have an excellent academic record, it may be worth applying to your dream school in case you are awarded one.

Student Loans: Federal Loans

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