How Much Should You Really Borrow for Your Education? This Process Will Help You Decide

Student studying


Susan Ehrlich
Susan Ehrlich15
CEO at Earnest

Are you considering college or grad school, but worried about how to foot the bill? You’re not alone. In 2017, more than 12 million American families filled out the Free Application for Federal Student Aid form, popularly known as the FAFSA. Like many students, you may find that once you’ve exhausted your available scholarships, grants and college savings, loans can be a way to cover the rest of your tuition if you don’t have cash on hand. 

If you need to take on debt for your education, it’s important to think of it as an investment in yourself and your future earnings: what will your return on investment look like?  It’s an investment that many will undertake because on average college graduates earn more. According to College Board’s ‘Education Pays 2016’ study, the median college graduate who enrolls at 18 and graduates in four years can expect to earn enough, relative to the median high school graduate, to make up for:

  • Being out of the labor force for four years

  • Paying the full tuition for a degree

  • Education fees, books, and supplies 

All of this is without first factoring in any financial aid received. 

But while a degree can open doors, taking on the debt to get you there is a big decision. It is important to make an informed decision and make a plan to tackle that debt. You wouldn’t buy a car or a house without doing some research — financing a degree is no different. 

Make smart decisions before taking on debt.

When you’re applying to college or grad programs, choose your school with care, and focus on what graduates from that program have done after finishing. You’ll be in their shoes sooner than you think. For example, a 2018 study by the National Center for Education Statistics showed the average 6-year graduation rate at private for-profit institutions was 26%. While the lower cost of a for-profit college might appeal, the data suggests that these institutions may invest more in attracting students than retaining them. Among all new students entering a for-profit school in 2004, nearly half defaulted on their student loans within 12 years, showing a poor return on investment for most. 

Look for a non-profit school where most students finish their degree (retention rate) and graduate in four years (graduation rate). These kinds of schools are likely to give you the best chance of success.

Fairygodboss or other crowdsourcing websites are a great way to measure the average income of specific job titles if you think you already know what industry you want to pursue with your degree. This could help you decide how much you can afford to borrow in student loans (based on the monthly payment you will owe) as an investment in growing your future income. This can also help you determine which colleges and programs offer you the best opportunity for earning a return on your investment in your education.

If you know what you want to study, but aren’t sure what jobs are associated with that degree, reach out to your high school or college counselor. These are often under-utilized resources for students but could provide highly personalized guidance. Those attending graduate school should take similar a similar cost versus return analysis with the help of career counselors.

Proactively manage your debt.

When deciding how much you will borrow for your education, consider how you will manage that debt after graduation, or even before then. If you have a strategy to make payments while you're in school, even as little as $25 a month, you may feel comfortable taking on more debt.

College or grad school is also a great time to get into good spending habits and learning how to budget for larger necessary expenses. Making payments on your student loans now will help you establish a good credit score, which can have a positive ripple effect not only on future loans, but on getting an apartment, buying a car and more.

Once employed, you may want to look into consolidating and/or refinancing your student loans. Refinancing is the process of replacing an existing loan with a new loan, often with a lower interest rate or a lower monthly payment. If you have multiple loans, refinancing could also consolidate these many bills into one clean monthly payment. 

Type your loan details into a refinance calculator to see how much a lower interest rate could save you over the life of the loan. The difference between interest rates can seem so small and unimportant, but over the life of a loan, lowering your rate from 6.5% to 5.5%, for example, could lead to significant savings.

Taking on debt to pay for your education is an investment in your future earnings. Doing your research, taking the right loan for you, and being proactive with your debt management is one of the best investments you can make in your financial future. 


Susan Ehrlich is the CEO of Earnest, a lender using cutting-edge data science, smarter design, and software automation to rebuild financial services. We offer student loan refinancing, student loans, and personal loans. Disclaimer: This post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.