How Much Should I Borrow?

Outcomes

For many students, taking out loans is a necessary part of financing their education. If you think you might need to take out a loan, how much should you borrow? In this module we will cover:

When to take out student loans
How much to borrow
Factors to consider before borrowing
For most students, taking out loans is a necessary part of financing their education

For most students, loans play an important role in paying for their degree. You may know you will have to borrow some money, but how much?

Start with a quick calculation:

Write down the total cost of attendance
Subtract scholarships, grants, and work-study offers
Subtract the amount of money you and/or your family have saved and are willing to pay

If there are some costs remaining, this is likely how much you will have to borrow this year!

Feeling a little overwhelmed! We’re here to help! In this module we’ll help you find ways to potentially reduce the amount you have to borrow and introduce tools to help you see what paying your loans back might look like!

Total Cost of Attendance: includes direct costs and estimates of indirect costs
Direct Costs: tuition and fees
Indirect Costs: can include housing, food, textbooks, travel, and more
Expected Family Contribution (EFC): what the federal government — taking into account your family’s finances — thinks you can contribute towards college costs. It is not what your family should be expected to pay out of pocket. That estimated number is then used by your school to determine how much financial aid you might be able to receive

I think I will need to take out student loans, how much should I borrow?

Because loans have to be repaid with interest, they should generally be the last option you consider when deciding how to pay for college. Before considering taking a loan, it is a good idea to run the following quick calculation:

Write down the total cost of attendance
Subtract scholarships, grants, and work-study offers
Subtract the amount of money you and/or your family have saved and are willing to pay

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If the result is zero or negative, you may not need to take out a loan. If the result is positive, this is likely the amount you will need to borrow for the year.

If you are overwhelmed by this amount, here are some strategies to lower the amount you may have to borrow:

Applying for extra scholarships
- Not sure where to start? Check out WashBoard or ask your high school or college if they offer any scholarships
Finding a part-time job that will work with your school schedule
Ask the financial aid office at your school for other options you could apply for, like a tuition waiver

If you decide to borrow a loan, it is important to keep in mind that:

It is better to accept federal loans before looking into private loans
You do not have to accept the full loan amount(s) awarded to you. You can choose to borrow only the amount that you need to meet your cost of attendance
If you borrowed less than you were offered and later discover it was not enough to meet your needs, you can choose to borrow more later in the term
There is a small origination fee on federal student loans (about 1%), so you should expect that the amount of loan money you get is a little less than what was awarded to you

I am thinking about taking out a loan, how can I know if I will be able to repay it?

Your ability to repay your loans after school is based on a lot of factors. Here are some strategies that can help you set yourself up for success in the future:

- Look at the average salaries, debt, and monthly loan payments for graduates at the schools and programs you’re considering.
  - Check out the U.S. Department of Education’s College Score Card to see this information and help you make an informed decision.
- Determine the percentage of graduates in your major who find employment in their field after graduation. Check out Washington’s Career Bridge website or get information directly from your school.
- Research your school’s retention and graduation rates (the higher the better). What types of programs does the school have to support students who may struggle with academic, financial, or other issues? This will help you determine if your school will support you and help you get to graduation.
- Research your school’s default rate (the lower the better). This will tell you how successful students are at repaying their loans after leaving school.

Check Your Understanding

#1. When it comes to taking out student loans, how much should you borrow?

Nothing

All federal loans offered to you, but no private loans

Only as much as you need to cover educational costs

Everything that is offered to you

Many students will need to take out loans to finance their education. You should only borrow as much as you need; however, it is generally a good idea to take out federal loans before considering private loans. You may need to borrow all of the federal money that is offered to you, but in general you should be looking to borrow as little as possible.

Only borrow as much money as you need to cover educational costs (after exhausting scholarships, grants, work, and savings options) and keep in mind what you can afford to repay.

#2. Which of the following is a positive attribute of a school?

High student debt

Low retention rate

High graduation rate

High loan default rate

A low graduation rate and high default rate aren’t promising signs that you will be getting a good education that will set you up for success. However, in some cases, the school’s stats may not be reflective of your experience. For example, many community colleges have low graduation rates; however, if you are motivated to complete your AA and transfer to a 4-year school this may still be a good option.

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