Parents and students alike should pay attention. Before borrowing for college, it’s essential to explore various loan calculators and formulas.

With rising college expenses, students often graduate without a clear understanding of their debt and future payments. Many parents find themselves co-signing private loans or taking out Parent PLUS loans for their children.

So, what’s the borrowing landscape? The average college graduate borrowed $30,030 for a public university bachelor’s degree in 2021, and currently, around 3.6 million parents are collectively responsible for $96 billion in Parent PLUS loans.

However, borrowing can be beneficial. Loans often enable students to pursue their desired college experience and career aspirations. The challenge lies in knowing when borrowing becomes excessive. Student loan calculators are crucial tools for potential borrowers to use before finalizing any agreements. The calculations you perform now will help answer the vital question: “Will I manage the payments post-graduation?”

The Department of Education advises that no more than 10-15% of your discretionary income should go toward student loan payments. Discretionary income is what’s left after essential expenses like rent and groceries. Payments exceeding 15% can become a heavy burden.

Let’s explore how to run the necessary calculations to make your educational journey a positive experience for the whole family!

ASK: What income can we anticipate after graduation?

Degrees in fields like computer science or engineering can lead to entry-level salaries of $90,000 or more, making higher debt manageable. Conversely, majors like elementary education or journalism may only yield starting salaries around $35,000, making significant loan payments less feasible. Use tools like payscale.com or the US Bureau of Labor Statistics Occupational Outlook Handbook to estimate salaries. “It’s not wise to borrow heavily if a student won’t earn enough to repay the loan comfortably,” advises a financial expert.

ASK: What are the limits on federal student loans?

Many families don’t realize that students can’t borrow enough through federal loans to cover all college costs. There are set limits: $5,500 for the first year, $6,500 for the second, and $7,500 for the third and fourth years, with an additional $4,000 possible for a fifth year, totaling $31,000.

ASK: How much borrowing will be necessary?

Families often need to exceed federal borrowing limits. Options include co-signing private loans or federal Parent PLUS loans.

Even if final college costs aren’t clear until late in a student’s senior year, you can estimate what you can afford in loan payments, suggests a college planner.

For instance, if your student plans on attending a local in-state university and you anticipate needing $15,000 after the $5,500 freshman federal loan, a loan calculator reveals that at a 6% interest rate, the monthly payment for a $15,000 loan over 10 years would be $166. If interest rises to 8%, the payment jumps to $181, totaling $347 monthly for just two years. Can you handle that kind of payment?

Consider potential borrowing across all years. Some families face $1,500 monthly payments in addition to the student’s federal loans, which could mean another $250 to $350 monthly for a standard 10-year repayment. “It’s a wake-up call,” the planner notes.

Before committing to your top school choice, run calculations to assess what’s manageable based on expected career and budget. The Mapping Your Future calculator helps determine necessary salaries for various loan payments.

ASK: What are the expectations regarding this debt for everyone involved?

Many families co-sign private loans with the belief that the student will take over responsibility and that the parent can be removed as a co-signer. Unfortunately, over 50% of students face rejection when trying to release their parents from co-signing. This often occurs because of insufficient income, a lack of work experience, or too high a debt-to-income ratio. In such cases, parents remain liable for payments if their child cannot pay.

Moreover, Parent PLUS loans, which are in the parent’s name, cannot be transferred to the student. Even if a student intends to assist with payments, the obligation remains with the parent.

Ask yourself: If your student achieves loan release, can they manage typical federal student loan payments of about $250 (on a standard 10-year plan), in addition to a private loan? Experts recommend that students take on no more debt than their expected first-year salary, and some suggest even that could be overly ambitious. Be realistic about post-graduation earnings when performing loan simulations.

Don’t hesitate to reassess your options if needed.

Feeling overwhelmed? It’s understandable. The financial strain of college costs can be daunting. But remember, options are available.

Sometimes, considering a more affordable college option is the best choice — starting at a community college or selecting in-state institutions can significantly reduce borrowing needs. Additionally, living at home or targeting colleges that offer generous merit or need-based aid can also lower costs.