What to consider before taking out a student loan

July 24, 2023

These four guidelines will help ensure you’re taking on an appropriate amount of debt for your education.

If you need to take out a loan to help pay for school, you’re not alone. Most full-time college students receive some kind of financial aid, according to College Board.

While a majority of families pay for college with a combination of savings, income and financial aid, you need to be careful when taking out a loan for school. It’s important to consider how much you can borrow and comfortably repay in the future.

The following guidelines can help you set an upper loan limit that’s manageable for you — so that when you do earn your degree, you’ll be able to manage your loan payments.

1. Explore alternatives to private student loans

Make sure you exhaust all options for scholarships, grants and federal student loans before considering a private school loan. Scholarships and grants don’t have to be repaid, and federal student loans typically have lower interest rates than other forms of student loans.

2. Be cautious in estimating future income

One way to determine the amount of debt you can handle after graduation is to estimate your future earnings. The Occupational Outlook Handbook from the U.S. Department of Labor provides information on hundreds of occupations, including typical income. But regardless of how much you think you’ll make in the years ahead, be conservative. The job market can be unpredictable, and finding a job in the field of your choice might take longer than you think.

3. Don’t spend your entire income on student loan payments

Once you have an idea of what your annual income might be, you should be able to project your monthly income. Your monthly payment total (for all student loans) shouldn’t keep you from being able to cover basic expenses like your rent or mortgage, food, utilities, transportation, health insurance and other debt. But even if you think you can easily manage a student loan payment after graduation, don’t borrow so excessively that you’ll be paying it back for decades.

4. Remember, student loans count toward your credit score

Taking out a student loan is a big responsibility. Student loans are considered debt and will be reflected on your credit report, as will your repayment patterns. Failure to make monthly payments or repay your loans on time will hurt your credit score. While this may not seem important now, a credit score affects many things you’ll want and need to do in the future, including renting an apartment, buying a house or car and even getting a job. In short, when you borrow money or use any form of credit, you need to manage it wisely.

Get the A to Z 's of student loans and learn about important terms to know related to college loans.

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