• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

The College Investor

Student Loans, Investing, Building Wealth

  • About
  • Podcast
  • Research
  • Contact
  • Save For College
      • How To Start

      • How To Save For College
      • How To Pay For College
      • What Is the Average Cost of College?
      • What Is A 529 Plan and Where to Open One in Your State
      • How Much Should You Have In A 529 Plan By Age
      • How To Use A 529 Plan For Private Elementary And High School
      • What Are Qualified Expenses For A 529 Plan (And What Doesn’t Count)?
      • The Best Brokers To Open A 529 Plan
      • Tools + Accounts

      • 529 Plans: The Ultimate College Savings Plan
      • 529 Plan Contribution Limits
      • Prepaid Tuition Plans | What To Know
      • Understanding And Using 529A ABLE Accounts
      • Using A Roth IRA To Save And Pay For College
      • FAFSA Deadlines for Financial Aid
      • CollegeBacker Review
      • Upromise Review
      • UNest Review
      • Other Options

      • Student Loan And Financial Aid Programs By State
      • The Guide To Military And VA Education Benefits
      • How To Fill Out The FAFSA
      • How To Find College Scholarships
      • The Best College Scholarship Search Websites
      • How To Find Grants To Pay For College
      • Pell Grants: What They Are And How To Qualify
      • Understanding Federal Work-Study
      • How To Use A 529 Plan If Your Child Doesn’t Go To College
  • Student Loans
      • Borrowing

        • How Student Loans Work
        • How To Apply For A Student Loan
        • Best Student Loans And Rates In January 2023
        • 10 Best Private Student Loans Of January 2023
        • Best Student Loans To Pay For Graduate School
        • Best Student Loans To Pay For Medical School
        • Parent Loans To Pay For College
        • No-Cosigner Student Loan Options
        • Guide To Income Sharing Agreements (ISAs)
        • Best International Student Loans
      • Get Out Of Debt

        • Best Student Loan Refinance Companies In January 2023
        • Best Student Loan Repayment Plans
        • Best Student Loan Refinancing Bonuses And Promotional Offers Of January 2023
        • Student Loan Forgiveness Programs (The Complete List)
        • The Full List Of Student Loan Forgiveness Programs By State
        • Public Service Loan Forgiveness (PSLF)
        • Top Student Loan Scams
        • Average Student Loan Monthly Payment
        • Average Student Loan Debt By Year
      • Reviews

        • Credible Review
        • Splash Review
        • Ascent Review
        • Citizens Bank Review
        • Commonbond Review
        • Earnest Review
        • ELFI Review
        • Laurel Road Review
        • LendKey Review
        • SoFi Review
  • Investing
      • How To Start

        • How To Start Investing in High School
        • How To Start Investing In College
        • How To Start Investing In Your Twenties For 22 – 29 Year Olds
        • How To Start Investing In Your 30s For 30 – 39 Year Olds
        • How To Start Investing With $100 Or Less
        • How To Give Kids The Gift Of Stock
        • What Is Dividend Growth Investing
        • IRA Rollover Chart
      • Tools + Accounts

        • Best Online Stock Brokers
        • The Best Traditional And Roth IRA Accounts
        • The Best Robo-Advisors
        • The Best Investing Apps
        • The Best Places to Trade Options
        • The Best Places To Open A Health Savings Account
        • The Best Solo 401k Providers
        • The Best Self-Directed IRA Providers Of 2023
        • Best Cryptocurrency Exchanges
      • Reviews

        • Vanguard Review
        • Fidelity Review 2023
        • M1 Finance Review
        • TD Ameritrade Review 2023
        • Charles Schwab Review
        • Robinhood Review
        • Webull Review
        • Betterment Review 2023
        • Wealthfront Review
  • Earn More Money
      • Extra Income

        • 20 Best Side Hustles You Can Start Earning With In 2023
        • 53 Side Hustle Ideas To Make Money Fast
        • 100 Ways To Make Money In College
        • 80 Ways To Make Money From Home In 2023
        • 5 Quick Money Making Ideas (That Take Less Than 1 Hour)
        • 10 Interesting Ways You Can Make Money Driving
        • High-Paying Side Gigs That Earn $1,000 or More Per Month
        • The 10 Best Money-Making Apps
        • Paid Surveys: Earn Money For Giving Your Opinion Online
        • 10 Crazy Ways To Make $10,000 You’ve Never Heard Of
      • Build Wealth

        • 40 Passive Income Ideas You Can Use To Build Wealth In 2023
        • 3 Ways To Make $50,000 Per Year Without Working With Passive Income
        • How To Become A Real Estate Investor With Just $500
        • 15 Best Online Business Ideas
        • Residual Income: 7 Super Smart Ways to Build It
        • The Most Common Multiple Income Streams
        • How To Become A Real Estate Mogul With Only $10,000
      • Reviews

        • Fundrise Review
        • RealtyMogul Review
        • FarmTogether Review
        • AcreTrader Review
        • Swagbucks Review
        • Survey Junkie Review
        • TopCashback Review
        • DoorDash Review
  • Personal Finance
      • Banking

        • 10 Best High Yield Savings Accounts Of January 2023
        • 10 Best Money Market Accounts Of January 2023
        • 10 Best Free Checking Accounts In January 2023
        • Best Bank CD Rates Of January 2023
        • 10 Best Business Checking Accounts In January 2023
        • Best Online Banks Of January 2023
        • Best Credit Unions Nationwide Of January 2023
        • Best College Student Checking Accounts Of January 2023
      • Insurance

        • Best Life Insurance Companies
        • Renters Insurance
        • Car Insurance
        • Pet Insurance
        • Umbrella Insurance
        • Disability Insurance
        • Tuition Insurance
        • Travel Insurance
      • Credit Tools

        • Best Budgeting Apps
        • Cash Advance Apps
        • How To Get A Free Credit Score Report
        • Best Credit Monitoring Services For 2023
        • Debt Settlement: Inside The Secret World
        • Credit Repair Explained: Should You Pay For Help?
        • Best Personal Loan Companies And Lenders
        • Online Loan Companies To Borrow From Home
      • Tax

        • Best Tax Software
        • Free Tax Software
        • IRS Tax Refund Calendar
        • Common IRS Questions and Errors
        • Federal Tax Brackets
        • Capital Gains Tax Brackets
        • 401k Contribution Limits
        • IRA Contribution Limits
        • HSA Contribution Limits
  • Forum
  • Search
Home » Student Loans » Budget Before You Borrow | Make Sure You Know Your College Costs

Budget Before You Borrow | Make Sure You Know Your College Costs

Updated: July 22, 2022 By Mark Kantrowitz

Tweet
Share
Share
Pin
Email
Print

At The College Investor, we want to help you navigate your finances. To do this, many or all of the products featured here may be from our partners. This doesn’t influence our evaluations or reviews. Our opinions are our own. Any investing information provided on this page is for educational purposes only. The College Investor does not offer investment advisor or brokerage services, nor does it recommend buying or selling particular stocks, securities, or other investments. Learn more here.Advertiser Disclosure

There are thousands of financial products and services out there, and we believe in helping you understand which is best for you, how it works, and will it actually help you achieve your financial goals. We're proud of our content and guidance, and the information we provide is objective, independent, and free.

But we do have to make money to pay our team and keep this website running! Our partners compensate us. TheCollegeInvestor.com has an advertising relationship with some or all of the offers included on this page, which may impact how, where, and in what order products and services may appear. The College Investor does not include all companies or offers available in the marketplace. And our partners can never pay us to guarantee favorable reviews (or even pay for a review of their product to begin with).

For more information and a complete list of our advertising partners, please check out our full Advertising Disclosure. TheCollegeInvestor.com strives to keep its information accurate and up to date. The information in our reviews could be different from what you find when visiting a financial institution, service provider or a specific product's website. All products and services are presented without warranty.

How to Budget for College

There are two types of budgets that students should consider before borrowing money to pay for college. One budget is used to determine how much you’ll need to borrow to pay for college.

The other considers how much student loan debt you can afford to repay after you graduate. Each type of budget will reduce the amount you may want to borrow. 

A key goal of budgeting is to borrow as little as possible. Borrowing increases your costs. Student loans must be repaid, usually with interest. Borrowing too much money will make it harder to repay your debts.

Table of Contents
Budgeting For College Costs
Using A Budget
Budgeting For Repayment

Budgeting For College Costs

To minimize student loan debt, borrow only what you need, not as much as you can. Don’t treat loan limits as targets.

Start by figuring out how much you’ll need to borrow. Subtract financial aid, such as grants and scholarships, from total college costs. Some of the remaining costs can be covered with contributions from savings and income. What’s left is how much you’ll need to borrow to pay for college. 

College costs fall into two groups, mandatory and discretionary. Mandatory costs include tuition and required fees, as well as taxes on scholarships and student employment. Discretionary expenses include room and board, transportation, books, supplies and equipment, as well as walking around money (e.g., eating out and entertainment). Discretionary expenses often include consumables that don’t have as lasting an impact as the mandatory expenses. 

There is some flexibility with discretionary expenses. Try to cut the discretionary expenses as much as possible. Live like a student while you’re in school, so you don’t have to live like a student after you graduate. 

Every dollar you borrow will cost about two dollars by the time you repay the debt. So, ask yourself if you would still spend the money if it cost twice as much, because that’s really how much it will cost you.

Mandatory expenses are much less flexible. Sometimes, you’ll have no choice but to cut mandatory expenses, such as tuition. You don’t need to go to the most expensive college in your field of study. An in-state public college may give you just as good a quality education (sometimes even better) as at a high-priced private college, but at about a third of the cost. Although you may qualify for less financial aid at a lower-cost college, your student loan debt may also be lower. 

Be careful about cutting some expenses. Statistically, students who enroll part-time, enroll at a community college, work a full-time job or live off-campus are less likely to graduate with a Bachelor’s degree. However, knowing the statistics can help you avoid becoming one.

Using A Budget

Preparing a budget can help reduce spending. When you know what you’ll owe, you are less likely to spend as much. Similarly, increasing awareness of spending is the first step in exercising restraint. Understanding college costs can also encourage you to apply for more scholarships and grants, since free money is cheaper than borrowed money.

Track your spending in each budget category by getting receipts for every expense. Record the expenses in a spreadsheet or personal finance software like Mint.com or Quicken. Calculate totals for each category at the end of the month and compare them with your budget. Just knowing that you spent too much money in one category will help you hesitate to spend too much in that category in the future. 

There are other psychological tricks that can help you limit spending. “Paper or plastic” is not just a question asked at grocery stores. It also concerns whether you use cash or credit to spend money. Paying with plastic feels the same, whether you are spending $5 or $500. Paying with cash, on the other hand, makes it feel like you’re spending real money. 

This is why some students try a cash-in-envelopes approach, where each discretionary budget category has its own envelope. When the money in that envelope is gone, it cannot be replenished until the start of the next month. The spending must necessarily end. 

The one time you should procrastinate is when it comes to spending money. Try to build in delays when spending money, especially on big ticket items. Wait a few days before buying something to see if you really need it. The delay helps you resist the immediate impulse to spend money by distancing you in time and space from the object of your desire. Do you really need to spend the money? If you do need it, do you need to buy it now? Can you save money by buying it used?

Related: Budgeting For Your Personality

Budgeting For Repayment

In addition to budgeting based on college costs, you should also consider your ability to repay your student loans after you graduate. Don’t borrow more than you can afford to repay. 

If you borrow too much money, you may get into financial trouble. You can get trapped in a cycle of debt, never being able to pay off your student loans, forcing you to borrow more for other expenses. Defaulting on your student loans can ruin your credit, making it difficult to get a credit card, auto loan or mortgage. When you do qualify for a loan, your interest rate will be higher. Defaulting on a student loan can also affect your ability to get a job or rent an apartment.

There is a simple rule of thumb for affordable student loan debt. Aim to graduate with less total student loan debt than your annual starting salary. If your total debt is less than annual income, you should be able to pay off your student loans in ten years or less.

This rule of thumb is the equivalent of having monthly student loan payments on a 10-year repayment term that are less than 10% of gross monthly income. Your monthly student loan payment will be about 1% of the loan balance when the loans entered repayment.

Estimate your student loan debt at graduation by multiplying your first-year student loan debt by four and add 20% to cover the impact of loan fees and the interest that accrues during the in-school and grace periods. 

You can estimate your starting salary based on your academic major by using various websites, such as Payscale.com’s College Salary Report, Salary.com, U.S. Bureau of Labor Statistics (BLS), the U.S. Census Bureau’s Post-Secondary Employment Outcomes Explorer and the U.S. Department of Education’s College Scorecard.

If total student loan debt will exceed your annual income, you’ll struggle to repay your student loans in ten years. Try to find a way to borrow less. Otherwise, you’ll need an alternate repayment plan, such as extended repayment or income-driven repayment, which reduces the monthly student loan payments by increasing the repayment term. But, increasing the repayment term will also increase the cost of your loans. 

Even if your student loan debt is in sync with your income, try to pay off your student loans as quickly as possible. 

  • Pay more to pay less. Choosing the repayment plan with the highest payment you can afford will save you money on interest and pay off your student loans quicker.
  • Pay extra to pay less. Make extra payments on the loan with the highest interest rate, which might not be your student loans, but rather your credit cards. This will reduce the weighted average interest rate on your debts and save you the most money.

You can also save by signing up for AutoPay or Auto-Debit, where your student loan payments are automatically transferred from your bank account to the lender. Not only are you less likely to be late with a payment, but you may save money. Most lenders will provide a small discount, such as a 0.25% or 0.50% interest rate reduction, as an incentive. 

When you file your federal income tax returns, claim the student loan interest deduction. This is an above-the-line exclusion from income for up to $2,500 in interest paid on federal and private student loans. You can claim it even if you don’t itemize deductions.

If you pay all your bills on time, your credit scores will improve enough within a few years of graduation for you to qualify for a lower interest rate on a private refinance of your private student loans.

Mark Kantrowitz
Mark Kantrowitz

Mark Kantrowitz is an expert on student financial aid, scholarships, 529 plans, and student loans. He has been quoted in more than 10,000 newspaper and magazine articles about college admissions and financial aid. Mark has written for the New York Times, Wall Street Journal, Washington Post, Reuters, U.S. News & World Report, MarketWatch, Money Magazine, Forbes, Newsweek, and Time. You can find his work on Student Aid Policy here.

Mark is the author of five bestselling books about scholarships and financial aid and holds seven patents. Mark serves on the editorial board of the Journal of Student Financial Aid, the editorial advisory board of Bottom Line/Personal, and is a member of the board of trustees of the Center for Excellence in Education. He previously served as a member of the board of directors of the National Scholarship Providers Association. Mark has two Bachelor’s degrees in mathematics and philosophy from the Massachusetts Institute of Technology (MIT) and a Master’s degree in computer science from Carnegie Mellon University (CMU).

Budget Before You Borrow | Make Sure You Know Your College Costs

Editor: Robert Farrington

Editorial Disclaimer: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, or other advertiser and have not been reviewed, approved or otherwise endorsed by any of these entities.
Comment Policy: We invite readers to respond with questions or comments. Comments may be held for moderation and are subject to approval. Comments are solely the opinions of their authors'. The responses in the comments below are not provided or commissioned by any advertiser. Responses have not been reviewed, approved or otherwise endorsed by any company. It is not anyone's responsibility to ensure all posts and/or questions are answered.
Subscribe
Connect with
I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree
Notify of

I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree

0 Comments
Inline Feedbacks
View all comments

Primary Sidebar

Student Loan Resources

Featured Lender Reviews

>  Credible (recommended)
>  Splash (recommended)
>  ELFI
>  LendKey
>  Earnest
>  Laurel Road

Paying For College

  • Best Student Loans And Rates
  • Best Private Student Loans
  • Student Loan And Financial Aid Programs By State
  • Student Loans For Community College
  • Best International Student Loans
  • Best Student Loans For Graduate School
  • Best Student Loans For Your MBA
  • Best Student Loans For Medical School
  • How To Get A Private Student Loan With No Cosigner
  • How To Get A Student Loan With Bad Credit

Navigating Repayment

  • How To Select The Best Student Loan Repayment Plan
  • 5 Legal Ways To Lower Your Student Loan Payment
  • How To Use A 529 Plan For Student Loan Repayment
  • These Companies Offer Student Loan Repayment Assistance

Student Loan Forgiveness

  • Student Loan Forgiveness Programs (The Complete List)
  • Student Loan Forgiveness Programs By State
  • President Biden’s Student Loan Forgiveness Plan
  • Public Service Loan Forgiveness
  • Borrower Defense To Repayment
  • For-Profit College Student Loan Forgiveness List
  • Private Student Loan Forgiveness
  • Trade School Loan Forgiveness Programs

Student Loan Refinance

  • Best Student Loan Refinance Companies
  • Best Student Loan Refinancing Bonuses And Promotional Offers
  • Lenders That Offer Student Loan Refinancing Without A Degree
  • How To Refinance An International Student Loan
  • Best Medical School Student Loan Refinancing

More On Student Loans

  • Top Student Loan Scams
  • Does The Government Profit Off Of Student Loans?
  • Statue Of Limitations Laws For Student Loans
  • What Should You Do With Your Old FFELP Loans?
  • How To Get A Refund Of Your Federal Student Loan Payments

Footer

Who We Are

The College Investor is an independent, advertising-supported financial media publisher, focusing on news, product reviews, and comparisons.

Connect

  • Contact Us
  • Advertise
  • Press & Media

About

  • About
  • Our Team
  • Podcast
  • Editorial Guidelines
  • How We Make Money
  • Archives

Social

Copyright © 2023 · The College Investor · Privacy Policy ·Terms of Service · DO NOT Sell My Personal Information

wpDiscuz