1. Borrow only what you need
Borrowing more money than you need can lead to a heavy financial burden after graduation, as you’ll have to pay back the principal plus interest. This can limit your ability to pursue other personal finance goals, such as buying a home or starting a business.
According to Bankrate’s online calculator, every $1,000 you borrow equates roughly to $10 to $11 in monthly payments, Conway says. (For federal Direct Loans first disbursed on or after July 1, 2023, and before July 1, 2024, undergraduate loans come with a 5.5% interest rate, while graduate loans have a 7.05% interest rate, hence the variation.) Using these guidelines, a $20,000 undergraduate loan could end up costing $200 per month or more for 11 years.
Additionally, taking out more loans than necessary can play a role in future money management by affecting your ability to get approved for future loans. Lenders look at your debt-to-income ratio, which is the amount of debt you have compared to your income. If you have too much debt, your credit score may suffer, and you may be seen as a high-risk borrower.