If you absolutely must borrow money, don’t borrow more than you need for any given academic period. The more you borrow, the more you have to pay back—and the more interest you’ll pay. Even if you’re offered a large loan, you don’t have to accept the full amount. And you should use your loan only for essential student expenses—those you won’t mind still paying for ten years down the road. (In other words, don’t use your loans to pay for lifestyle choices such as vacations, dinners out, or new clothes.)
See it in action
Undergraduate student Lana decided to take out a Federal Direct Subsidized Loan with a 4.29 percent interest rate. Her plan was to pay about $57 a month after graduation. When she ran the numbers to figure out how much to borrow, here’s what she found:
|Borrowing more||Borrowing less|
|Total repayment cost||$6,774||$3,339|
|Years to pay off||10||5|
By borrowing $2,500 less, Lana will save $935 in interest and pay off her loan in half the time without increasing her planned monthly payment.