Families of high school seniors scramble every spring to figure out how to help their student finance their higher education. After exploring the status of parent and student savings as well as parent income, many families assume they’ll need to borrow student loans to cover the remaining costs. Borrowing can indeed open pathways to your student that wouldn’t otherwise be accessible. But the trick is not to get overextended. Burdensome college debt affects many major life choices, including first jobs, purchasing a home, starting a family, and when people can retire. Here’s what experts recommend considering as you determine how much debt you and your student can handle.
Discuss your family’s expectations of debt
Before students and parents embark on borrowing money for college, it’s critical to have an honest conversation about family finances to figure out what you can pay and what you expect your student to pay. “Communication is the #1 most important factor in college planning,” says Scott Gibney, an educational consultant with Gibney Solutions LLC in Northport, New York. If parents are divorced and finances are more complicated, it’s even more critical. While some students take on student loans in their own name, many parents will also co-sign private student loans or take on a Parent PLUS loan, assuming their student will eventually take over the loans and make the student loan payments—but parents don’t always discuss that expectation openly, says Fred Amrein, CEO of PayforEd, a student loan assistance company. Sometimes students don’t know until they graduate what kind of debt load their parents have taken on their behalf.
It’s possible for parents to be released as co-signer on some private loans, but Parent PLUS loans legally belong to the parents. Even if a student agrees to assume the loan payments on top of their personal student loans, could their future career choice handle it? What if they don’t find a job right away or earn enough money after they graduate? Will you be able to handle the Parent PLUS loans without your student’s help? “It’s more than just understanding the full balance,” says Gibney. “It’s understanding what that debt is going to mean when the student graduates and how it’s going to affect their (and your) savings, rent, and other bills.”
Consider career outcomes and grad school
Any student and parent borrowing should be viewed through the lens of the student’s future career prospects. “Consider the projected income for professions [of interest] and the job opportunities available,” says Meagan Landress, a certified student loan professional at Student Loan Planner. Students can use resources like the company College Money Matters—a nonprofit that helps families plan for college—that provide a list of careers and associated starting salaries; the Bureau of Labor Statistics, which publishes the Occupational Outlook Handbook; and Salary.com and PayScale, which allow students to explore entry-level salaries.
If your student plans to pursue a lucrative career such as engineering or computer science, debt for a more expensive school may be reasonable. But the problem is 50% of students change their major while in college, Gibney says. “Many assume they’re going to be earning $100,000.” If your student plans to attend graduate school to improve their chances of a high-level position, it’s even more important not to overestimate entry-level salary and overborrow for an undergraduate degree.
Take the federal student loans first
If you think it’s your job to finance your student’s college education and you need to borrow, take the federal student loan options before you consider others, experts say. You can typically pay those loans off if you budget for it; they come with lower interest rates, deferred payments, and more flexible payment plans than Parent PLUS loans. And a portion may be subsidized—meaning the federal government pays the interest while the student is in college. Dependent students can borrow a total of $27,000 over four years, broken into allotted annual amounts. That total may vary depending on family factors and if a fifth year of attendance is needed, but that’s the typical limit. For a balance of $27,000, the monthly payment is about $275 on a standard 10-year repayment plan.
College experts have found this loan amount is usually manageable, but it depends on the student’s career choice and regular employment. General guidelines recommend that students allocate no more than 10%–15% of their take-home pay toward student loans. Another recommendation is to limit student loans to 8% of your gross salary before taxes and other deductions. According to the Map Your Future Calculator, a graduate’s salary would need to be about $41,000 to comfortably support a monthly payment of $275. Sometimes students move home after college to live rent-free and aggressively tackle student debt. The sticking point is that many families need to borrow more because the annual student loan often doesn’t cover the gap between financial aid offered and what families can pay.
Explore other loan options with care
After federal student loans, the other options are private parent, private student, or federal Parent PLUS loans. Private student loans almost always require a co-signer because students typically don’t have the credit history to qualify on their own. Whoever co-signs is liable for the loan. Private loans also don’t offer the same payment flexibilities that federal student loans do, such as income-driven repayment plans or subsidized interest. If you have stellar credit, they may come with a lower interest rate, but they can never be converted to a federal loan for access to different payment plans. On the other hand, Parent PLUS loans introduce a different set of risks. Parents must undergo a credit check, and with good credit history, you’re allowed to borrow up to the cost of attendance after grants and scholarships have been subtracted. The federal government won’t conduct an income analysis to see what you can handle—meaning parents can get underwater fast if they borrow every year or for multiple kids. So be sure to tread carefully.
Analyze parent income and retirement information
If you plan to borrow parent loans and pay them back yourself, analyze the reliability of your job, partner’s job, and retirement savings. If things are reliable and on track, then borrowing might make sense. As a guideline, SavingForCollege.com recommends not to borrow more than your annual salary in total for all your students to afford the payments over 10 years.
The Parent PLUS loan has access to just one income-contingent repayment plan, which allocates 20% of discretionary income toward payments. However, it also extends the payment and interest schedule and can become difficult in retirement. Try the federal loan simulator to calculate payments with different federal payment plans or this Bankrate calculator to run private debt scenarios.
The big issue for parents: You’re closer to retirement and your timeline for paying off college loans is shorter. Gibney suggests asking yourself these questions: Will the debt affect my retirement? Will I have to extend my working years? Am I basing my ability to pay on two incomes? What happens if one person is laid off? “Life gets in the way,” he says, so explore the best-, medium-, and worst-case scenarios. What could you handle?
Find a cheaper college if necessary
Hopefully, you’ve already introduced the idea to your student that some colleges may not be feasible if they cost too much. Many people believe a more expensive college is more prestigious, but it’s your student’s degree and what they do with it that matters. Borrowing excessively for an expensive college could set you up for life-altering consequences. Less expensive options could mean staying in state to max out available aid, attending a lesser-known college that offers great merit scholarships, commuting from home, or starting at community college and transferring later. For any kind of parent borrowing, it may be worth consulting a financial advisor with college loan expertise for guidance, because college is one of the biggest purchases you’ll ever make.
For even more advice on paying for your student’s education, check out and share our article on How to Figure Out Your College Costs.