How Much Is Too Much with Student Loans?

Student loan defaults are on the rise, raising concerns about yet another financial destabilizer. Is there a way to determine when to draw the line when it comes to racking up student loan debt?

By Sarah Wright


An Education Bubble?

In the summer of 2011, several news outlets, including The Huffington Post and The Chronicle for Higher Education, reported on a disturbing financial trend. Since the financial crisis began in 2008, education loan holders have been defaulting on those loans in increasing numbers. Data suggests that students who attended for-profit colleges represent a disproportionately high share of defaulters, even though the vast majority of students in the U.S. do not attend for-profit schools.

According to The Chronicle, the government's data on these defaults does not paint a complete picture of the scope of these defaults. This should be cause for concern for any student considering loans as a means of paying for his or her education. Student loan debt cannot be absolved through bankruptcy, and becoming snowed under by an inability to pay these loans can lead to financial disaster. But what can students do to avoid this fate?

How Much Do You Need to Borrow?

It's pretty difficult to set a specific limit for what irresponsible borrowing is for student loans. Every borrower is different, and it's impossible to say what will happen after you graduate. You might actually end up being able to easily pay for your loans. But it's a good idea to try to have the smallest possible loan burden, no matter how much money you expect to make. One easy way to keep the loan burden down is to attend a reasonably priced school. While most high school students are encouraged to judge schools on merits other than tuition, it might be a smart thing to put front-and-center in your college search.

If you're not one of the fortunate few who don't have to worry about your ability to pay back loans, you're going to have to be extremely cautious. Strive to get as much of your education as possible covered by grants and scholarships that you won't have to pay back. Try to earn money to cover personal expenses so you won't get into debt trouble with personal loans or credit cards. Be very aware that every financial decision you make is an important one, and that your financial future could be saved by caution and frugality in the present. And it can't hurt to do the best job you can in while you're still in school, and try to work on starting a career path that you can segue into well before graduation.

A Bet on Yourself

Ultimately, taking out any kind of loan is a sort of gamble. You're making a pledge that, in the end, you'll be able to come up with an amount of money that you don't currently have, even if that amount is compiled over time. It's impossible to predict whether this will actually happen, though of course loan-granting institutions do their best to determine whether you're likely to be able to pay the loan back before agreeing to grant you the money in the first place.

Student loans have an extra element of uncertainty, because you're essentially betting on your own ability to be successful. And given the terrible economy, high unemployment rate and extremely competitive job market, it's harder than ever to assume that your education will pay off. This shouldn't deter you from pursuing education that can help give you an edge in the job market. But it's definitely cause for extreme caution when signing up for education loans.

One of the best ways to protect yourself from getting in over your head with loans is to understand what you're getting into before you sign up for anything. This guide to new student loan rules will help.

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