The Goldilocks Student Loan: When College Debt Is Just Right

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Brian O'Connell

By Brian O'Connell

December 12, 2018

While mom and dad are worried about getting enough money to pay for their kids’ college education, there’s another potential problem that flies under the college financing radar: borrowing more student loan money than you actually need and incurring larger financing costs as a result.

This issue is particularly problematic given that many borrowers go into a student loan scenario blind to potentially negative financial outcomes. NERA Economic Consulting reports that 40% of college graduates who carry $75,000 or more in student loan debt say they had no financial counseling before signing off on the loan.

Finding Your Student Loan Sweet Spot

The path to good student loan management is finding the sweet spot on loan amounts before signing on the dotted line. While the exact amount depends on each borrower’s unique needs, there are a few handy tips that can help you find your Goldilocks level of student loan money, and minimize additional (and needless) student loan debt after graduation.

Estimate your first year’s salary after graduation. A good place to start is to match your total student loan amount with your first year’s salary in your field after graduating. The goal is simple enough. If you peg your first year’s salary at $45,000, then you shouldn’t borrow more than $45,000 in total student loans. In general, if your student loan debt is less than your total first-year salary, you can reasonably expect to repay your entire student loan debt within 10 years, by steering 10% of your income toward your student loan debt.

To get an approximate estimate of your first year’s salary after you graduate, use field-specific salary data from career sites like,, or The U.S. Department of Education’s College Scorecard also has some useful information.

Calculate your student loan repayment amount. Knowing beforehand what your estimated student loan repayment scenario looks like can help you borrow the right amount of student loan money. Whether you’re considering $20,000 or $40,000 in total student loan debt, a good student loan repayment calculator, like the one from, will tell you what the monthly payoff burden will be on student loans of any amount.

Consider the financial aid package and college costs. Paying for college is a river with many streams, all providing some level of funding to students, with money primarily coming from grants, scholarships, savings, and work-study in addition to student loans. How will the funding change each year? Are the scholarships renewable? Does the college practice front-loading of grants?

Compare the financial aid estimate with college costs, ideally over all four years. Factor in room and board, books and supplies, and other living expenses, in addition to tuition and fees. Then borrow only what you need to cover the difference, after subtracting financial aid.

Choose your lender wisely. Unless you have sterling credit, federal student loans usually have lower fixed interest rates compared to private loans. While some private lenders offer fixed rates that are competitive with federal parent loans for borrowers with excellent credit, the interest rates for other borrowers can be double or even triple the federal fixed rates. Private and parent loans should be considered only after your reached the federal student loan limits.

Saving on total student loan interest over a four-year period can significantly cut your borrowing costs. That’s why calculating and adding student loan interest rates and fees into the equation can be a big help in estimating total college loan amount needs.

The Final Countdown

The takeaway? Getting a firm grip on your total potential student loan needs for all four years as an undergrad and any additional years for graduate students isn’t a luxury – it’s a necessity.

The goal is to only borrow what you really need, and even then, borrow as little as possible, and add money from personal savings, scholarships and grants into the mix to keep college loan costs as low as possible.

Do that and you’ll find that after you leave campus, your student loan repayment experience will be easier to handle than if you added $5,000 or $10,000 more in unneeded student loan cash.

Instead, use the savings to live the life you imagined as a newly-minted college graduate for a down payment on a new home, to continue your education, or to start a solid retirement savings plan.

That’s smart money management and it’s all possible because you took the time to calculate your student loan “sweet spot” and borrowed only the loan amounts you really needed.

A good place to start:

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