Alice Murphey: Financial Aid Expert

Borrowing Smart for College

March 29, 2011

Borrowing Smart for College

These days, when you graduate from college, you walk out into the work world not only with a diploma but also most likely with a high degree of debt.

Consider this: 60 percent of college graduates took out loans in 2008, according to a Pew Research Center report released in November 2010, borrowing an average of more than $15,425 to earn a bachelor’s degree and some $6,649 to pick up an associate or certificate degree.

Don’t get scared by what I’m going to tell you: You’re likely to be joining their ranks regardless of where you go to college. Let’s break the report’s numbers down another way: 95 percent of students at private for-profit schools, 72 percent at private schools and 50 percent at public colleges, borrowed.

Of all the types of financial aid, loans are the least desirable because you do have to pay them back. But borrowing for your college education will be a boon, not a burden, if you do it in a way that’s in your best interest.

Let’s assume that you’ve done your math homework and borrowing is not an option but a given to get you through college.

How much should you borrow?

Before you answer that, ask yourself what kind of job you hope to get when you graduate and how much it will pay. The expected salary of a teacher, for instance, is a lot different from that of an engineer.

The U.S. Labor Department’s “Occupational Outlook Handbook,”, will give you information about average salaries; the National Association of Colleges and Employers’ salary calculator will show you data on starting salaries at

Why do you need to know this? Generally, the repayment amount of the loan should not exceed 10 to 15 percent of your average earnings over a period of 10 years.

If your repayment is higher, you may not be able to afford those everyday expenses that you may want to take on in the years after college — such as a car, a house, and children.

Next, find out what the average debt level is for the college you have chosen. This is important because your loan amount probably will increase as the tuition goes up. Although some colleges will increase your scholarship when tuition rises, others don’t have the money to do so.

Finally, if you find that you need to borrow, I’ll give you – not loan you – my best advice: Choose the loan that gives you the biggest bang for your bucks.

The federal loan programs – the Direct Stafford Loan Program ( and the Perkins Loan Program ( — have relatively low interest rates and allow you to defer payments for a period if you are unemployed or underemployed. College-funded loans also are usually a good option, but they are not always available.

Make private loans, the ones offered through lenders and banks, your last choice. They usually have much higher interest rates and are set up to make it easy for you to dig a very deep hole that is very difficult to pay your way out of.

Alice Murphey, CUNY’s director of financial aid management, has been helping students with tuition issues for more than 30 years.