How Much Should You Borrow for College?
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Here's your Money Briefing for Wednesday, September 8th. I'm J.R. Whelan for The Wall Street Journal. This year's freshman class is just getting settled into their first year of college, but next year's freshmen are not only finalizing where they're going to attend college, but how they're going to pay for it. Many families plan to borrow through student loans, but financial experts say that planning process should have already begun.
A lot of people make the mistake of not planning, and then they end up with a $300,000 college bill. You're planning for your financial future starting with college, and so budgeting is really important.
So how far ahead of entering college should students and families start planning for what's likely to be one of the biggest expenses they ever take on? And how should they allocate funds now for paying off the loan after graduation? We'll talk with WSJ contributor Cheryl Winokur-Monk about that after the break.
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How many families plan to borrow for college and how large are typical loan amounts?
Americans currently hold more than $1.5 trillion in student debt, and families of students planning to enter college next year are in line to add to that number. For many families, having to borrow is a no-brainer. But how much should they borrow? And what's the best way to map out paying it back? WSJ contributor Cheryl Winokur-Monk has been our go-to contact for the college loans picture in the U.S. She's been speaking with financial experts about this topic, and she's here to talk about it. Cheryl, thank you for being with us.
Thanks for having me.
So Cheryl, borrowing money for college is a huge undertaking. How many families with college-age students are affected?
It actually affects a lot of families. So a recent survey by College Ave Student Loans, which is a provider of private student loans, found that 55% of families plan to take out student loans this year. That's a pretty large number. And of those families, slightly more than half say they expect to borrow $10,000 to $40,000 in loans. and 23% said they plan to borrow $75,000 or more. So we're not talking small amounts here. And especially when you consider the huge amount of debt that this country has, the aggregate debt, $1.6 trillion or so, it's a big problem.
Now, you've spoken to a lot of people who work in the area of financial decisions regarding college. What do they say about the planning process for taking out a loan?
You really can't plan enough. A lot of people make the mistake of not planning, and then they end up with a $300,000 college bill, and then they're like, well, now what? But really, you need to be planning all along and say, it's just like doing a budget, right? You're going to work, and you're paying for your expenses, but in this case, you're planning for your financial future starting with college, and so budgeting is really important.
Okay, so how long before a student applies for colleges should the family start having these conversations about budgeting?
Well, at least a couple years because you want to know when you're applying to schools that you're applying to schools that you can actually afford.
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