How Much Should You Borrow in Student Loans?

Learn how to determine what student loan amount you should get

Parents and son talking with financial advisor about borrowing for college costs.
Photo: Blend Images/Ariel Skelley/ Vetta/ Getty Images

If you need to pay for college, taking out a student loan may be unavoidable. While an educational loan represents an investment in your future, a loan is a loan. Since you will be borrowing the money, you will have to repay it with interest, potentially long after you leave college.

Therefore, you must think carefully about how much you should take out in student loans and what loan you should get. Make these considerations when determining the ideal amount to borrow.

Evaluate Non-Loan Options

Funding for school can come from three main sources: free money, such as scholarships and grants, earned money, work-study or another job, and borrowed money from a loan. It makes financial sense to accept free money first, then earned money, and finally borrowed money.

Before deciding how much you should take out in student loans, first attempt to secure free money that you don't have to repay later, including federal grants and scholarships. Any money that you don't have to pay back can reduce the amount that you will have to take out in student loans.

For example, apply for Pell Grants, which are federal grants given to undergraduate students who have financial need and have not already earned a bachelor's, graduate, or professional degree. Plus, unlike a loan, you don't have to repay a Pell Grant.

Even if you don't believe that you will qualify for a federal grant, you should apply because it starts the process of applying for other forms of financial aid, including loans. You can submit a Free Application for Federal Student Aid (FAFSA) form to apply for a Pell Grant, work-study, or a loan.

If you don't qualify for a Pell Grant, get help paying for school through other grants or scholarships. Like Pell Grants, scholarships are gifts that you don't need to repay. Schools, private firms, non-profits, and other organizations offer them—some based on merit and others based on income or other criteria. Scholarships can range from a few hundred dollars to the full cost of your tuition, so it's worth applying to reduce your debt burden.

Determine How Much You Can Earn

Coming in second only to securing free money, the best way to reduce the amount that you should borrow in student loans is to work. You can choose to work a job over the summer or one of your other school breaks, or you can do work-study during the school year, which is a federal student aid program that allows you to earn a part-time income while you go to school.

Although you may not be able to cover all of your expenses, you can likely reduce the amount that you need to cover your living expenses and possibly part of your tuition.


In lieu of a job or work-study, consider participating in an AmeriCorps program to help cover the cost of your tuition for a few semesters.

Set Up Your Budget

The general guideline to follow is to borrow only as much as you need. You can reference the costs estimated by the university, but many students can live on a much lower amount. It's more accurate to create a budget, which is a plan for how to spend money that estimates your actual costs and financial aid or income as a student.

Start by adding up your estimated monthly educational expenses, including:

  • Tuition
  • Books
  • Transportation
  • Rent
  • Utilities
  • Entertainment or dining expenses

When estimating the above expenses, factor in the specific school and its pricing, the cost of living in the school's location, your expected graduation date, and your future borrowing need through that graduation date.

Then, sum up the monthly equivalent of any amount that you have already secured to cover those expenses, including:

  • Grants
  • Scholarships
  • Wages from work
  • Personal savings

Subtract the second figure from the first figure to determine roughly how much you need to borrow on a monthly basis. Your college budget will do a lot to determine just how much you need to bring in through financial aid or income versus how much you need to take out in school loans.

Figure How Much Money to Take Out in Student Loans

Multiply the resulting monthly amount from the previous step by the number of months you plan to be in school to determine a baseline for how much you should take out in student loans in total. You do not want to cut it too close, or you could easily fall short of paying for necessary educational expenses. But you do not want to live too extravagantly either, as this creates the need to borrow more.

Factor in Future Income

You do not need to accept all the money for which you qualify. And nor should you if you anticipate your future income to be insufficient to repay that amount.

It's a good idea to research starting salaries for recent graduates in your field using the resources at your school's career center. This will give you an idea of how much you can expect to earn after graduation. Consider adjusting the amount you take out in loans to ensure that you can comfortably repay the loan with your future income.

Decide on the Type of Loan

What loan you take out is as important as how much you take out. In fact, the loan type can even influence the loan amount. Generally, it is best to go with a federal loan over a private loan. Federal loans, which include Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans for graduate and professional students, offer several advantages over private loans, including:

  • Fixed interest rates: These rates are usually also lower than private loan rates.
  • Advantageous payment terms: This might include income-driven repayment plans.
  • Ability to defer payments: You generally don't have to start making payments on federal loans until you graduate, leave school, or drop down to less than full-time status. In contrast, you often have to pay private loans while you are still in school.
  • No credit check: Federal loans generally don't require a credit check for qualification, whereas private loans may impose credit checks.
  • Loan forgiveness: You may be able to have your federal student loan forgiven after a period of time, which isn't a benefit that most private loans offer.
  • Eligibility for subsidies: Borrowers with financial need may qualify for subsidized loans, which is a loan that the government pays interest charges on while you are enrolled at least half-time. In contrast, private loans are usually unsubsidized, so you generally won't get help with interest payments while in school. In general, you should borrow subsidized loans first and then unsubsidized loans if necessary.
  • Ease of application: When you're ready to apply for a federal loan, you can use the same FAFSA application that you used for a Pell Grant. You would need to apply for private student loans through your financial aid office or directly from the lender.

In general, federal student loans are sufficient to meet your needs for in-state tuition. If you choose a federal loan, the amount you can borrow is further limited by the specific type of loan you plan to take out. Undergraduates can borrow a maximum of $5,500 to $12,500 per year in Direct Subsidized Loans or Direct Unsubsidized Loans depending on your current year in school and dependency status. If, however, you are a graduate or professional student, you can take out up to $20,500 in Direct Unsubsidized Loans. You can use Direct PLUS Loans for other costs not covered by financial aid.

If you are attending a pricier private school or going to medical school, you may need a private loan in addition to or in lieu of a federal loan. Be careful with the amount that you borrow through private lenders because of the higher interest rates.

Assess Repayment

Before you settle on a loan repayment plan, estimate your monthly loan payments and how much you will be paying in total for your loan. To do so, use the Repayment Estimator on the U.S. Department of Education website. The calculator will spit out your estimated loan payments under different repayment plans so that you can decide which one is right for your needs.

Before you receive your loan proceeds, you will be asked to complete entrance counseling to ensure that you understand the requirement to repay the loan. You will also be asked signed to sign a Master Promissory Note in which you must agree to the loan terms.

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  1. Federal Student Aid Office of the U.S. Department of Education. "Federal Student Loans for College or Career School Are an Investment in Your Future."

  2. Federal Student Aid Office of the U.S. Department of Education. "Federal Student Loans: Basics for Students," Page 3.

  3. Federal Student Aid Office of the U.S. Department of Education. "Federal Pell Grants Are Usually Awarded Only to Undergraduate Students."

  4. Federal Student Aid Office of the U.S. Department of Education. "Find and Apply for as Many Scholarships as You Can—It’s Free Money for College or Career School!"

  5. Federal Student Aid Office of the U.S. Department of Education. "Federal Student Loans: Basics for Students," Page 6.

  6. Federal Student Aid Office of the U.S. Department of Education. "Federal Student Loans: Basics for Students," Page 4.

  7. Federal Student Aid Office of the U.S. Department of Education. "Federal Student Loan Programs," Page 1.

  8. Federal Student Aid Office of the U.S. Department of Education. "When It Comes to Paying for College, Career School, or Graduate School, Federal Student Loans Can Offer Several Advantages Over Private Student Loans."

  9. U.S. Department of Education. "7 Options to Consider if You Didn’t Receive Enough Financial Aid."

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