1. Student Loans: Introduction
  2. Student Loans: What Can You Afford to Borrow?
  3. Student Loans: How Federal Student Loans Work
  4. Student Loans: Private Loans
  5. Student Loans: How Student Loan Repayment Works
  6. Student Loans: Paying Off Your Debt Faster
  7. Student Loans: How Federal Student Loan Consolidation Works
  8. Student Loans: Private Loan Consolidation
  9. Student Loans: Conclusion

Don’t let anyone else tell you how much you should to borrow for college, because they aren’t the ones who will have to pay your bills. How much you should borrow is something you have to figure out for yourself. And the first step in figuring that out is constructing a college budget based around two things: what you can afford without borrowing and what it costs to attend the schools you’ve been accepted to. Let’s start with what you can afford, and let’s say you’re a soon-to-be freshman planning for your first year’s expenses.

Determining What You Can Afford

Find out and write down the answers to each of these questions:

– How much money are your parents putting toward your college expenses?

– How much money are you putting toward your college expenses from your savings?

– How much money will you earn from a job, after taxes, while you’re in college?

– How much money have you received in scholarships, grants and contributions from other relatives?

– How much federal student aid have you qualified to borrow?

– How much private student loan money have you qualified to borrow?

Determining What College Costs

The website of the school you’re attending as well as current students at that school are your best sources of information on the total cost of attendance. Your budget should include the following categories:

– tuition and fees

– health insurance

– medical bills and prescriptions

– housing (living at home, dorm, apartment)

– food (meal plan, groceries)

– transportation to and from school for breaks (plane or train tickets, rides to and from the airport, gas)

– local transportation during the school year (car plus gas and insurance and parking, bike, public transit, ridesharing)

– clothes (especially if you’re moving to a different climate or need nice clothes for job interviews, work or an internship)

– dorm-room furnishings (you need a lot less than Bed, Bath and & Beyond would have you believe, but you will need those extra-long sheets)

– computer, peripherals and software

– textbooks and other course reading materials

– school supplies

– social activities, club dues and entertainment

– phone and internet

– gas, water and electricity (if not included in dorm costs)

– laundry

Applying Your Budget to the Affordability Dilemma

Seeing the hard numbers for the money you have available for college, the actual cost to attend each school you’re considering and how much you might need to borrow can help you make a financially wise choice. Since the ultimate goal of borrowing money for college is to earn more money after graduation in a career that you find intellectually stimulating and personally satisfying, let’s consider how much the value of a degree from a specific school is worth, how much a degree in a specific field is worth and how much you might expect to earn after graduation as a result of having a specific degree from a specific school. Let’s also consider where you might be living and what your monthly expenses might look like during your first year after graduation. (For more help learning how to manage and track your income and expenses, see our Budgeting Basics tutorial.)

Does Paying More Pay Off?

Let’s say that you do need to borrow to attend four of the five schools you’ve been accepted to. The affordable option is your state school where you’d pay in-state tuition. How do you know if it’s worth borrowing – and how much it’s worth borrowing – to attend any of the other four schools? This is one of the biggest questions students face.

But did you know that it’s not attending a top-tier school but simply being the type of student who can get accepted to such a school that might be the real driving factor behind those graduates’ success? Don’t assume that you need to shell out for an Ivy-league education to have a great career.

Then there are lists like the one from Payscale that rank colleges and universities by salary potential. The site’s College Salary Report for 2017–18 indicates that to earn the most money after college, you should attend one of these schools:

1. Harvey Mudd

2. Princeton

3. MIT

4. SUNY Maritime

5. US Military Academy

6. US Naval Academy

7. Cal Tech

8. Babson

9. Harvard

10. Stanford

The full list comprises 1,532 schools that grant bachelor’s degrees. But keep in mind as you review the rankings that many schools whose graduates earn the most have a high percentage of graduates going into STEM (science, technology, engineering, and mathematics) fields. A mathematics degree from Princeton might be worth borrowing for; an English literature degree might not. (For more insight, see Is an Ivy League Degree Worth It? and 8 College Degrees with the Best Returns on Investment.)

Researching Your After-College Income

Websites such as Salary.com can help you estimate what you might earn after graduation in the career and location of your choice. You can adjust any position you find for your degree level, years of experience, job performance and other factors. The graph below shows what a programmer in Austin with a bachelor’s degree, less than one year of experience, no underlings and average performance might expect to earn.

Besides your education and prior work experience, factors that will affect your actual income include the company you work for, the economy, how well you interview and negotiate, and how in-demand your job is and your location. Even the best numbers you find online will just be estimates, and they usually don’t account for employee benefits. A good health insurance plan can give you a lot more disposable income; a bad plan or no plan can do the opposite.

Another source to consult is the Bureau of Labor Statistics’ Occupational Outlook Handbook. It provides information on the highest paying, fastest growing and most in demand jobs; the career outlook for various fields; the median pay; what the highest 10% and the lowest 10% earned for almost any job; and more. The government offers a vast data set, but it reflects the United States as a whole and isn’t broken down by city or years of experience, so again, it will just give you ballpark figures.

You could also assume that you’re likely to end up in one of the top 20 most popular jobs for college graduates and see what they earn, as reported by Forbes. It can be sobering to learn that you might end up as an administrative assistant earning $40,000, a customer service rep earning $35,000, an intern earning $30,000 or a substitute teacher earning $25,000. How would you repay your loans on one of those salaries? Is it time to think about majoring in software engineering?

Researching Your After-College Expenses

Use a spreadsheet like the one below to estimate your expenses, modifying it as necessary to meet your own needs and making copies for each city you’re considering living in. This task might seem overwhelming if you’ve never researched how much real life costs before. Few of your peers have probably undertaken this task. Your parents might not even do it to manage their own finances. But you’ll be so much better off financially if you learn to do this task now.

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        
Social Life/Entertainment        
Personal Care Items/ Grooming        
Health Insurance        
Transportation/Insurance/Gas/Car Registration        
Pet Care        
Savings (ideally, at least 15% of your income)        


Doing this time-consuming, eye-opening work is key to understanding what you’re really getting into when you borrow money for college. At a minimum, fill out the first column. If you don’t have older friends or relatives who live in your desired areas, an online forum like Facebook or Reddit might get you some on-the-ground answers.  Good sources for living expenses include Trulia for median rental prices by neighborhood and Numbeo, the world’s largest user-contributed database about costs in cities and countries worldwide. You can also use a cost-of-living calculator to see how far a comparable salary will go in various cities or to directly compare living costs in two cities.

Hard Choices ­­– Reality Check

Now that you’re armed with numbers based on real information, not just guesses, you can make an informed decision about how much you’re willing to spend on your education and how much you’re willing to borrow. Be aware that some expensive colleges have huge budgets for scholarships, including some full scholarships. If you have an excellent academic record, it isn't dumb to apply to one of those dream schools in case you are awarded one.  But sometimes, the hard truth is that it makes more sense to attend your state school and graduate with little to no debt than it does to attend the Ivy you’ve worked hard your whole life to get accepted to, but that hasn’t offered you enough financial aid.

Next, let’s talk about how federal student loans work.

Student Loans: How Federal Student Loans Work
Related Articles
  1. Personal Finance

    Free Financial Counseling Programs For Students

    Learning to manage your money is no easy task, but there are plenty of resources designed especially to help.
  2. Personal Finance

    Budgeting While You're In College

    Test your money management skills as you work your way through university.
  3. Personal Finance

    Here's How to Create a Successful Budget

    Break your expenses into needs, wants, and savings goals for a budget plan you can stick to.
  4. Personal Finance

    Why It’s Essential to Create a Budget for Yourself

    Budgeting may sound elementary, but it is the cornerstone of sound fiscal management.
  5. Personal Finance

    Avoid Borrowing a Fortune for College

    College is expensive but has many benefits. Use these tips to avoid borrowing a fortune for college.
  6. Personal Finance

    This Is the Year to Start Budgeting

    Whether your issue is credit card debt, student loans (or the fact that Social Security isn't rising next year), it's time to learn how to build a budget.
  7. Personal Finance

    How to Create a Budget You Can Actually Stick With

    Following these five steps can help you create a budget that you can stick with.
  8. Trading

    Top 5 Budgeting Questions Answered

    You don't need a degree to understand your money, begin saving and pay down debt.
Frequently Asked Questions
  1. What are the main segments of the real estate sector?

    Identify the three primary segments of the real estate sector and the metrics used by investors and analysts to gauge the ...
  2. What Are the Components of a Risk Premium?

    Learn the five main risks that comprise the risk premium and how they affect investors.
  3. How do university endowments work?

    Endowments are financial assets donated to universities or colleges. Here's how they work.
  4. Which of the Following Accounts Does ERISA Cover?

    A—IRA, B—State employee pension plan, C—Corporate defined-benefit plan, D—Coverdell savings account.
Trading Center