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Beginning pay for psychology majors is about $26,000, while English majors are getting about $28,000. At those pay levels, you're better off borrowing no more than about $18,000 over your college career.
(Curious about what pay to expect in your field? The National Association of Colleges and Employers conducts an annual survey for many fields. You also can ask guidance counselors, or simply use an Internet search engine. If you want to be an educator, for example, type "starting salaries for teachers" into MSN Search or another search engine and explore the results.)
Yes, your salary should go up over time, which should in theory make your payments more manageable. But your financial obligations also will multiply. Chances are you'll be buying a home someday, hooking up with that special someone, perhaps having kids. You'll need cars, furniture, retirement savings, college savings for your own offspring.
No heroics from the parents
Parents, too, need to put limits on their borrowing. Too much debt can keep them from adequately funding their other goals, such as saving for retirement.If you've already got a mortgage, car loans and significant credit card debt, you may already be over the recommended 35%-of-pay debt limit. Someone making $60,000 a year with a $1,250 mortgage, $400 auto payment and $200 minimum payments on credit cards wouldn't have any room left under this guideline to borrow for college. If helping to pay for Junior's education is important to you and you understand the risks you're taking, you could push the debt limit to 40% or a bit higher -- but again, don't go overboard.
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Parents also should avoid the temptation to tap all their home equity to pay for a child's college education. If you borrow more than 80% of the value of your home, including your first mortgage, you pay higher interest rates and have little cushion left for emergencies.
Once you've decided the maximum you can afford to borrow over four years, don't take out more than 15% to 20% of that amount for the first year. College costs tend to rise over the typical student's undergraduate career, and lenders estimate you'll need as much as two-thirds of the money to pay for the last two years.
As an example, look at the maximum borrowing limits for subsidized Stafford student loans, a popular federal loan program. The first year limit is $3,500, the second year maximum is $4,500 while the third and fourth year top out at $5,500.
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Punished for saving for college?Costs are increasing. Will you lose out if you save a lot? Should you keep money in your kid's name?
Some alternatives
What if you find you can't prudently borrow the amount you need for school? Then you should consider some alternatives, if you haven't already:- If you're the student, look for a college that wants you. Your financial aid package will be much more attractive at a school that's trying to recruit you than at one where you're fighting to get in.
- Consider lower-cost alternatives.Attending a two-year school and then transferring to a four-year institution is often a good way to cap costs. So is opting for a top-rated public university rather than a mediocre private one.
- Get a job. Most students can help contribute at least some of their college costs. A part-time job during the school year, a full-time job in the summer or alternating a semester of work with a semester of study will all help defray education expenses.
Liz Pulliam Weston's new book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.
Updated Jan. 11, 2008
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