As a financial advisor and parent of three, with one heading to high school next year (oy!), I know all too well that the excitement of your child going to college can quickly be muted by knowing just how expensive that shiny new degree is going to be! Most people will need to borrow at least some money to pay for that degree. I’m here to help you figure out how much debt you can wisely take on and how to find the best loan possible.

Just how expensive is college, anyway? A private, nonprofit college or university will cost, on average, about $39,400 a year in tuition and fees alone, according to a College Board study of higher education pricing. Public four-year schools averaged $10,940 for state residents and a $28,240 for out-of-state residents. That’s not counting the additional costs of books, housing, food and more. A full-time community college student, while enjoying relatively low tuition and fees, spends around $1,760 a year on transportation alone. And college costs are rising every year due to a multitude of factors such as faculty salaries and upgraded campus amenities.

The big question on borrowing: It’s important to realize that there is a major difference between how much you can borrow and how much you should borrow for college. You can borrow up to the full cost of college, but, just as it’s not wise to borrow up to the limit on your credit card, you also don’t want to borrow more than you need to in student loans. As a rule of thumb for student loans, make sure your total amount of student loans is less than your projected starting salary for a career. And there are some sources of potential borrowing you should stay away from – a big one being retirement savings.

Why it’s a mistake for parents to borrow from their retirement savings: Removing funds from retirement accounts reduces the amount available for growth and could jeopardize your own financial wellbeing in retirement, especially when you consider you’ll be missing out on potential growth and compounding returns. You may also incur taxes and penalties if you tap into your accounts too early. While there are no options for “borrowing” from retirement accounts, there are other resources that can help cover college expenses, such as scholarships, work-study programs, and 529 savings plans. If you finance your children’s college education by sacrificing your own retirement funds, you’ll risk becoming financially dependent on your adult children during your later years. Insufficient retirement funds can lead to hardships and stress as you struggle with a lower quality of life and an inability to cover essential expenses. It’s crucial to make retirement savings a priority to help ensure you will have a comfortable and secure retirement.

Get a realistic picture of college costs before deciding to borrow: One way to determine a college’s affordability is by evaluating financial aid award packages. Take Princeton University, for example. It advertised a sticker price of $56,010 for tuition and fees in 2021-2022, but the average cost to students after receiving need-based grants that year was around $16,562.

A recent report from the Government Accountability Office estimates that 9 out of 10 colleges don’t include or understate a key number students need to determine whether a college is affordable before they enroll. Data from the National Student Clearinghouse showed that only 62% of students finish their degree or certification program within six years, thus extending costs along with their studies.

Look beyond tuition and fees: Calculate the total cost of attendance, including tuition, room and board, textbooks, meal plans, transportation and other expenses¹. If your student is studying far from home, don’t forget to include travel costs in your budget. If you have received a financial aid offer, compare your total costs to the amount of aid to figure out how much your out-of-pocket costs will be. You can even use College Ave’s student loan calculator to help you estimate what a monthly student loan payment would look like. This can help you determine how much you should borrow for college.

Rules for students to follow when deciding how much to borrow:

1. Don’t borrow the maximum amount just because you’re qualified; borrow only what you need.
2. Keep track of how much you’re borrowing every semester and every year.
3. Check in with yourself: what are scholarships and other free money covering? Can they cover more? Are you continuing to apply to scholarships year-round?
4. Once you’ve graduated and are looking for that first post-college job, know that your starting salary should be 1 to 1.5 times larger than your student loan balance.
5. Decide on the type of loan and repayment options that you think will work best for your monthly budget during school and after graduation.
6. Put together a plan for the maximum amount that you’re willing to take on and pay after graduation, and how the repayments will fit into your monthly budget

Getting into and staying in college takes planning – especially when it comes to your finances. Do your homework when determining how much to borrow for your college degree. While college costs continue to rise, remember your needs versus wants and differentiate between how much you can borrow and how much you should borrow for college.

It’s essential to have a realistic plan for loan repayment and consider post-graduation earning potential. By making informed decisions and setting borrowing limits, you can pursue higher education while also working towards financial independence.

¹How much should I borrow in student loans? | Consumer Financial Protection Bureau.

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