How Much Can I Afford to Borrow

When borrowing money for an education, it’s important to consider the amount of total money you will be borrowing and the subsequent payments.  Ideally you should not be obligated to payments that are more than 8% of your total yearly income.  It’s a good idea to evaluate your desired future profession to see what the average starting salaries are.  This of course is no guarantee of what you’ll be making, however it’s a good gauge with which to make an educated decision.

Remember that once you’ve entered into the agreement by signing the promissory note, you’re obligated to repay your loans.  It’s very important to agree to loans that you’ll be able to afford to repay once you’ve graduated (or left school). 

A typical federal student loan might have a rate of about 6.8% and a 10 year repayment term.  Given these figures as an example with loans totaling $10,000 you can expect to pay about $115 per month.  To keep your payments under 8% of your income you can expect to earn over 14,000 per year.  If you were to borrow $30,000 you should be making over $43,000.  If you had borrowed $50,000 you will be making a payment of about $575 per month and need a yearly income of about $72,000. 

As you can see, the more money you will borrow for your education, the more you can expect to pay and thus the more money you will need to make.  Lenders sometimes offer incentives through their loan programs as well as payment options that may reduce the burden of your payments.  You may also consider loan consolidation. If you have multiple loans with different lenders, you can often reduce your monthly expenses by consolidating them into one loan, with one payment and lender. 

Apply for a student loan today