College Debt: Don't Borrow More Than $27,000

Last Updated Feb 17, 2010 2:24 PM EST

High school seniors tend to turn their brains off when it comes to paying for college. They're so excited when the college acceptance letters begin arriving that they overlook how they will juggle the tab.

In my last post, I focused on how much college debt parents should shoulder. But an equally important question is how much students should be borrowing through college loans.

As far as I'm concerned the amount of college debt that students should tackle is a lot easier to pinpoint. I'd argue that students should take out no more than $27,000 worth of college loans. Here's why:

Students are less likely to get into financial trouble if they exclusively use federal student loans and sticking with federal loans will automatically restrict the amount a student can borrow. That's because the federal government imposes yearly student loan limits. Most students will be borrowing through the Stafford Loan program.

Here are the current maximum Stafford Loan amounts:
  • Freshmen: $5,500
  • Sophomore: $6,500
  • Junior: $7,500
  • Senior: $7,500
A student who sticks exclusively with Stafford loans based on the current loan amounts could borrow no more than $27,000.

The alternative to federal loans are private student loans, which are scary. The interest rates on private college loans are variable and the starting interest rates for some students can be far higher than federal loan rates. What's more students don't get the protections that federal loans offer such as income-based repayment and public service loan forgiveness programs.

Here's the bottom line: If students can't attend the college of their dreams by borrowing just $27,000, they may want to look at their other college options. Down the road, they will probably be glad they did.

Lynn O'Shaughnessy is the author of The College Solution, an Amazon bestseller. Follow her on Twitter.
Federal student loan image by tenaciousme. CC 2.0.

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