How much debt are you willing to incur for college expenses?

It is up to you to put limits on how much
debt you are willing to incur.  As
with mortgages, credit cards and most other kinds of debt, lenders are willing
to give you far more money than you can comfortably afford to repay.  Students face maximums on how much
they can borrow under federal student loan programs.  Private lenders have no such limits and
will typically lend students or their parents, the difference between their
college costs and any financial aid they
get.

These lenders know they have a pretty good
chance of getting paid back, and even though student loans are unsecured debt,
they can not typically be erased in a      
bankruptcy.

How Much Can You Safely
Borrow?

Your payments should not exceed 10% of your
expected gross monthly income after
graduation

If you are a parent, ALL of your debts,
should not eat up          

more than 35 % of your gross
pay.

Once you start borrowing, keep track of your
debt. It is easy to get confused about how much you owe, particularly if you
borrow from a number of different lenders.

Figuring loan
costs

Figuring a rate of 8% is pretty safe. That
is almost twice the current rate for federal student loans right now, but rates
may go up and most are capped at 8.25% to
9%.

At 8%, each $1,000 you borrow will cost
about $12 a month to repay, assuming you have a ten year
loan.

Once you have decided the maximum you can
afford to borrow over four years, don’t take out more than 15% to 20% of that
amount for the first year.  College
costs tend to rise over the typical student’s undergraduate career, and lenders
estimate you’ll need as much as two-thirds of the money

to pay for the last two years.

Some
Alternatives

What if you can’t prudently borrow the
amount you need for school?

If you’re the student, look for a college
that wants you. Your
financial aid package will be much more attractive at a school that’s trying to
recruit you than at one where you are fighting to get
in.

Consider low-cost alternatives.
Attending a two-year
school and then transferring to a four-year institution is often a good way to
cap costs. So is opting for a top-rated public university rather than a mediocre
private one.

Get a job. Most students can help contribute at least some of
their college costs. A part-time job during the school year, a full-time job in
the summer or alternating a semester of study will help   defray education
expenses.

There are TWO essential things you
need to know about student loans.

Lenders will give you every dime you need to
pay for just about any education you desire.

Just because you can borrow does not mean
you should.

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