Starting college in the fall? How to decide the right amount to borrow

Student loans are double-edged sword: They help you pay for college but then leave you with a monthly bill for at least a decade after you graduate.

The average student loan payment is $400 a month, according to higher education expert Mark Kantrowitz. And research has found those payments can make it harder for people to save for their futures, open businesses and start families.

“Taking on debt that equals the total cost of your degree isn’t affordable for most people,” said Anna Helhoski, a student loan expert at NerdWallet.com. “That means there’s a strong possibility of biting off more than you can chew when it comes to student debt.”

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And so, if you’re staring college in the fall, you should try to borrow as cautiously as possible, experts say.

“The general rule is to not borrow more than your average starting salary for your career of choice,” said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit. That includes for however long it takes you to get your degree, typically four or five years.

You can look up annual average incomes for different occupations at the Department of Labor’s website.

Helhoski at NerdWallet has a more conservative formula. She says to aim for student loan payments that don’t exceed 10% of your projected after-tax monthly income for your first year out of school.

She provided an example: If you earn a salary of $40,000 out of school, and the interest rate on your student loan is 3.73% (the current rate), an affordable payment would be under $225, or 10% of your monthly take-home pay of $2,233. And that means the total amount you can afford to borrow for college is about $22,300.

Mayotte has yet another way to help you determine the right amount to borrow.

“Every $10,000 you borrow ends up being around $125 per month, every month, for 10 years,” she said.

That means if you took out $100,000, you’d have a $1,250 monthly bill. Whatever number you arrive at, make sure it sounds doable.

“Finally, don’t ever borrow assuming loan forgiveness,” Mayotte said.

While the odds of student loan borrowers getting their balances reduced or eliminated have never been greater, “until legislation is signed into law, you can’t count on anything,” Kantrowitz said.

Make sure you exhaust any federal student loans available to you before you look into taking out private ones, Helhoski said.

“Federal student loans carry borrower protections that private loans don’t, such as opportunities for forgiveness and income-driven repayment options,” she said.

Under income-driven repayment plans, borrowers’ bills are capped at a portion of their earnings. Some payments wind up being as little as $0, and any remaining debt is typically canceled after 20 years or 25 years.

Unlike most private student loans, you can also press the pause button on your federal student loan payments for a certain period of time if you’re unemployed or financially struggling.

“I almost never recommend private loans,” Mayotte said.