Chapter 3. How to be a responsible borrower?

When borrowing, keep in mind that you need to be a responsible borrower! Think about how the amount that you borrow will affect future finances and how much you can realistically afford to repay after graduation. You need to picture the future destination of your educational/career plans and work backward to your present situation as a student. 

Being a responsible borrower is highly aligned with budgeting. Your student loan payments should be no more than 10% of your future net monthly income. It is important to not borrow more than you need for your school-related expenses and to keep track of how much you are borrowing cumulatively. You can revisit our module on Budgeting here to recall what you learned. 

 

How to

In order to estimate your safe borrowing margin, you need to research starting salaries in your field. Use trusted websites (such as the U.S. Department of Labor's Occupational Outlook Handbook Links to an external site.) to estimate the earning potential in your field of study or you can ask about starting salaries of recent graduates with people at your school.

You also need to keep track of how much you are borrowing cumulatively to make sure you do not run out of funds prior to your graduation. The last thing you would want is to run out of possible funding prior to finishing your degree. Federal student loan borrowing does carry a lifetime limit on the amounts you can borrow. Your responsibility as a borrower does not stop at the process of borrowing funds;  it extends through your repayment plans. You need to be able to enter repayment plans smoothly and gracefully.

You have an obligation to stay in contact with your loan servicer and keep your information with your lenders (federal and private) up to date and correct. Once you accept a job or relocate to another location, it is your responsibility to update your personal and financial information with your lenders. At the same time, you should contact your loan servicer/lender if you are having trouble making your scheduled loan payments. Your servicer/lender can provide you with options to keep you in good standing. Always remember that your student loans are included in your credit history, credit report, and your FICO score. Your financial reputation rests on your ability to be a responsible borrower.

Another obligation as a responsible borrower is to create a financial budget and work the repayment plan of your student loans into that budget. This will allow you to remain in control of your other financial decisions such as purchasing a car, or a home. Keep in mind that easy monthly payments could translate into a higher cost of total loan due to accumulated interested over a longer period of time. This is the reason why you would need to forecast a future personal budget to estimate how much you could comfortably borrow, so you could have your cake and eat too.

Practice

Now you know how to be a responsible borrower. Let's talk about borrowing responsibilities with your friends or your family members.

 

Congratulations! You can move on to Chapter 4. How to enter student loan repayment gracefully?

To review the full module on Student loans, click here.