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Illustration of a graduate student dragging a big weight attached to his cap
Martín Elfman for Money

As families run numbers on college costs, some inevitably will find that their schools of choice are out of reach without heavy borrowing.

Not every student takes out debt for an undergraduate degree, but it’s certainly become the norm at many colleges. About two-thirds of all bachelor’s degree recipients end up borrowing by the time they graduate, though the typical loan size varies by state and type of college. In 2020, undergraduate borrowing averaged from $18,350 in Utah to $39,950 in New Hampshire, according to The Institute for College Access and Success. Those averages don’t capture Parent PLUS loans, a hidden side of education borrowing with a sum that now surpasses $100 billion.

While borrowing is a necessity for many families in today’s higher education system, there’s no doubt that it can be risky, leaving some with debt they can’t afford to repay. Even for those borrowers who can manage their bills, student debt can affect a student’s job choice, where they live, and if or when they buy a home.

So how much debt is too much? When should parents borrow to help their children pay? Is a private student loan a smart idea? We checked in with five college finance experts for their advice.

Understand why you’re going to college in the first place

Before students or parents borrow a dime, it’s critical that students know why they want to go to college in general, and what they expect (or hope) to get out of the specific subject they’re studying, says Stanley Tate, a student loan lawyer.

“Why college, what am I studying, what is the expected rate of return for this degree, and is this the best college to serve that choice?” he says.

Too often, students dive head first into college and thousands of dollars of debt without researching their earnings potential or thinking about the long-term financial consequences for their families.

Tate sees that every day in his line of work.

“I come across many families who overborrow for their projected income,” Tate says. “I was on a call recently with a preschool teacher who owes $200,000 making $40,000 a year and can’t afford the payments. Her mother is a co-signer, and now she’s in the thick of it and trying to retire.”

If a student’s projected career path isn’t high-paying or if they’re not sure what they want to study (which is totally normal), consider more affordable college options where you won’t need to borrow as much, says Scott Gibney, a college planner with a financial focus.

For some, that could mean starting at a community college, choosing to attend an in-state public university, or commuting to save on housing costs. You should also factor in whether your career path will require graduate school and more loans in the future.

Meagan McGuire, certified student loan professional at Student Loan Planner, agrees it’s important to be clear-eyed about college goals. If you don’t know what your goals are, you might be better served taking some time off to figure that out before borrowing hefty loans, she says.

Stick to federal student loans if possible

The annual borrowing limit on federal loans — which totals $27,000 over four years for dependent students — is "an excellent limit" and generally manageable for undergraduates, says Ann Garcia, certified financial planner and author of How to Pay for College. That figure amounts to payments of roughly $325 per month over 10 years.

Another common guideline is to borrow no more than your first year’s salary. However, it’s easy to over-project your earnings, Garcia says, and borrowing more than the federal student limit involves your family co-signing private student loans or taking Parent PLUS loans to help.

“You may go into college thinking you’re going to be an engineer, but STEM majors have the highest attrition rates, so that assumption is a risky proposition,” she says.

There’s also the risk of entering a poor job market at graduation, or the student or parent losing their job. Federal student loans come with flexibilities that help protect borrowers from those unexpected outcomes, but private loans don’t, so planning only for best-case job scenarios can be dicey.

Still, the more difficult conversation is the choice between additional loans beyond the federal student limit or not going to college at all, says Brendan Williams, financial aid expert at uAspire, a nonprofit organization focused on college access and affordability. Even the federal student loan ceiling might be too much to handle for some students.

“It’s complicated, so we don’t tell students they shouldn’t borrow, but we do tell them to borrow as little as possible,” Williams says. With its loan calculator (you can use it, too), uAspire helps students understand loan amounts, payments after graduation and borrowing as a multi-year process — too many people only look at the first year.

Be extra careful when considering private student loans

Although the vast majority of Americans’ student debt comes from the federal government, tens of thousands of students each year turn to private student loans to fill the gap between federal loans and the cost of college. This is where your family should be extra careful, experts say.

Private student loans for undergraduate degrees almost always require a co-signer for dependent students, which means parents are on deck to make payments should their student not be able to. Before you sign on the dotted line, map out whether you and your co-signer would be able to afford those payments on your current budget.

Keep in mind that private student loans lack federal protections like income-driven repayment plans and are often more expensive than federal student loans.

The interest rate on federal student loans is 4.99% for the current academic year. Private loans, on the other hand, typically offer competitive interest rates only for applicants with excellent credit scores. For others, it’s possible to see rates as high as 14% or 15%, driving up monthly payments for those who can least afford it. For example, a $15,000 loan with a 4% interest rate adds up to monthly payments of about $152 over a period of 10 years. With a 14% interest rate, you’d owe $233 per month — and pay roughly $9,700 more in interest over the life of the loan.

Parents, analyze your budget before taking on Parent PLUS loans

Every family financial profile is different and there’s no single right answer for borrowing. If you’re the parent of a student who’s borrowing and you want to help them shoulder that burden, consider your age, how many college-going kids you have, your own debt and what you have saved for retirement, Garcia says. Many parents are in their 50s by the time kids graduate and have a shorter time horizon to retirement.

It’s easy to get in over your head with Parent PLUS since you’re allowed to borrow up to the full cost of attendance. These loans have no income or ability-to-pay assessment, and they are legally yours even if your student has agreed to make the payment.

Family conversations and expectations need to be very transparent so no one is blind-sided at graduation, experts say. Can your student’s projected entry-level salary cover the parent loan payment on top of their student payment?

“Make sure the student is aware it’s going to be part of their budget when they graduate,” McGuire says. The regret she encounters typically stems from taking additional private loans that balloon monthly loan obligations.

If you do decide to take a Parent PLUS loan, be strategic about exploring forgiveness and income-driven repayment plans. For the right family, there’s a way Parent PLUS can make good sense, Tate says.

When parents use the income-driven repayment plan in the name of the low-salary or non-working parent, or they work in public service and qualify for Public Service Loan Forgiveness (PSLF), these loans offer an exit ramp. But make sure the right parent signs for the loan.

Note that for forgiveness via PSLF to work, the parent needs to be confident they will work long enough in a public service job to qualify. It’s complicated, could delay retirement and could backfire, just like student borrowing can.

If you know you want to pursue loan forgiveness or you simply want individualized advice about how much to borrow, it’s a good idea to do some planning with a student loan professional before borrowing. Search through the Certified Student Loan Advisors Institute to find someone in your area.

The bottom line? “My recommendation is to go to the very best possible school that costs you the least amount of money,” Tate says. “The decisions you make today are going to reach far into the future.”

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