Borrowing for College

“Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry”-Polonius, Hamlet I, iii

To pay for college, most students have to borrow. In 2012, the average student graduated with over $26,000 of debt. That would buy a 2014 Subaru Forester sport utility 2.5i and still leave enough money to tour the Rockies for a month. All told, total college debt amounts to over a trillion dollars, and it is relentlessly rising.

College borrowing outstrips credit card debt, and as this mountain of debt accumulates, one in five households now carry student debt, so rises the default rate. According to Bloomberg Business Week (September 29th, 2012) 11% of public school and 7.5% of private students are defaulting on their student loans. This is a scary proposition because most student loans are difficult to discharge, even in bankruptcy.

Obviously the best course is to avoid loans altogether. If you haven’t dived into the admissions process yet, keep in mind that it’s worth your while to find colleges which are affordable. One affordability litmus test is to first estimate your effective family contribution (EFC) to get a sense of what colleges are expecting you to pay. The College Board has an online calculator where you can do this,

Then go to each of your college’s financial aid sites, find its ‘net price calculator,’ and use it to calculate your cost of attendance (subtracting potential aid awards). If your EFC is less than your COA, you qualify for need based financial aid; however, this doesn’t guarantee you’re going to get any.

If, academically, you find yourself in the 75th percentile of an entering college class (in terms of GPA and test scores), most colleges are going to figure out a way to get you to enroll—that’s when their wallets open. A strong academic track record is your best means for getting subsidized. If you’re a borderline applicant, they might not offer much. 

Then the landscape of loans must be surveyed and considered. The best loans are federal student loans. Stafford direct subsidized loans (which are usually reserved for students from low income families) are at interest rates well below commercial banking rates. Better still the government pays interest on the loan while the student is enrolled. Loan repayments do not begin until 6 months after graduation. A student, however, over four years can borrow only $31,000 through this source.

There are unsubsidized Stafford loans in which repayment begins when the loan is disbursed, federal direct loans, and Federal Plus loans, which currently have interest rate at 7.9% and a 4% fee depending on the amount of the loan.

Federal Plus loans (aka Parent Plus Loans) can cover up to the total cost of attendance (COA) at an institution. These should be compared to home equity loans (in which you will be able to deduct interest charges.) Additionally, if you’re looking among commercial loans, take the time to apply for multiple loans through a site such as or The key, as in most ventures in life, is to create as many options as possible. With borrowing money this is even more important because various terms, interest rates, and fees can affect the total price of the loan by thousands of dollars.  

Be aware that many colleges have merit-based scholarships. Often, once your application is accepted, the school will let you know about opportunities, but just as often, they won’t. One place to uncover potential merit aid is at For example, at University of Pacific in Stockton, lists 32 scholarships. This could defray some of the loan burdens.

As with any effort, the more knowledge you have about your financial aid situation, and the alternative need-based and merit-based grants and scholarships, and the array of loans, and their pitfalls, the better you will negotiate the college financial aid process. Always question college financial aid offices about anything you don’t understand. Furthermore, if something is proposed that doesn’t make intuitive sense, seek an expert—and a number of them can be discovered online. Learn the ropes so that you’re not left hanging with an exorbitant, onerous load of debt upon graduation.