While no standard formula can absolutely predict how much money you can borrow and still manage your educational debt, it is crucial that you make informed decisions about what level of indebtedness you are willing and able to assume, and how you will use and manage your loans. The level of indebtedness each student can manage will vary depending upon his or her: lifestyle, expected starting salary and earnings prospects.

The best way to manage your educational debt obligation is to be aware of your indebtedness, not over-borrow and plan for the future. Student loan repayments should generally not be more than 8-15% of your income, and it is prudent to estimate your income level following graduation and determine the maximum amount you should borrow. By realistically and carefully planning and budgeting your income and expenses during every year of college, graduate and professional school you will minimize the prospect of major financial problems. Remember, you will have other needs and goals after graduation (buying a home, starting a family, starting a business, marriage, etc.). See the Education Resource Center section on Financial Planning and Debt Management - Mapping Your Future.

To begin to get an estimate of, "How much should you borrow?" first, review the average indebtedness levels and ranges of recent graduates from your school and disciplines you are interested in. If you are considering several schools obtain the data for their graduates. Recognize that these are ranges and averages only, yet they will help you in your projections of your own borrowing. Next, estimate your anticipated total debt by calculating your current loan amounts and projecting for your remaining years of study. Using the Monthly Repayment Schedule Chart find the amount of your loan level in the left hand column and then find your interest rate along the top of the schedule. b The amount of your expected monthly payment is where the two columns intersect. For loans with variable interest rates, estimate an average interest rate. Please note that loans with variable interest rates, monthly payments cannot be estimated with great accuracy because the rate is adjusted annually or quarterly. Do this with each loan and add the total for all the loans you have or expect to have at graduation to determine your total loan repayments on a monthly basis. Finally, you should research the starting and average salaries for the specific professions discipline you are pursuing. This information may be found in the occupational Outlook Handbook, published by the U.S. Department of Labor, Bureau of Labor Statistics, or from the career planning office of your school, the professional and or educational associations of the profession or discipline. The financial aid office of your school may have information that will help you estimate your income for the early years of employment in your chosen profession. Some financial aid offices have computer software available to help with projections of income and loan repayments.

EDWISE (www.edwise.org) -- EDWISE™ is an online financial planning tool developed by EDFUND and UCLA. You can calculate how much you can afford to repay and budget your money while in college and after. It's easy to use and provides a printed report with your financial information.

Remember, for each calculation, choice, and perception, there are transitions, which occur over time, and thus require a recalculation of debt threshold at different points in time.

Financial Planning & Debt Management Reminders:

• Establish a conservative budget for your living expenses and make every effort to live within that budget.However a budget is not written in stone, it is dynamic but be aware of the consequences of requiring increased amounts of loan dollars. · 
• Eliminating luxury items form your budget and thereby limiting your lifestyle for as long as necessary makes more sense than running the risk of getting behind on the payments for your educational loans and possible default. See The Education Resource Center section on The Consequences of Loan Default for a discussion of the consequences of being delinquent in your loan payments.
• Share living accommodations with one or more persons rather than living alone. This step can significantly reduce the cost of rent and utilities.
• Realizing that, even if you have to have an automobile, you do not have to have a new one. A car is not an investment it is a liability. Having a used car that is in good condition and is, relatively speaking, not costly to operate can make a big difference in the amount of car payments, insurance, and operational costs. But be sure that an automobile is absolutely necessary because it represents a major expense. One of the major causes of student loan default is the purchase of a new car.
• Keep entertainment expenses as a modest part of your budget for as many years as necessary.

Suggestions for Repayment Planning

• Early payments on principal will reduce the total interest costs over the life of the loan.
  
• > Take advantage of the grace period to save money for your future loan payments.
  
• Pay on time--interest is compounded daily.
  
• Think before making big purchases soon after graduation.
  
• Live with your new income and budget for a least a year before making any major purchases.
  
• > Take advantage of financial planning programs such as your local Consumer Credit Counseling Service.

How Much Debt is Too Much

• Excessive debt is that which alters perceptions of opportunity.
  
• Any debt, which influences a student's actions or choices.
  
• When the amount of debt is a surprise.
  
• Any debt, which results in early year cash flow crisis.
  
• When the amount of debt forces you to change your goals.
  
• For undergraduates, excessive debt is that debt which unnecessarily uses up allocations of subsidized loans.
  
• When monthly student loan payments should exceed 8 to 10% of gross monthly income.
  
• When educational borrowing exceeds the gross salary of the first job after graduation.
  
• > When students over-estimate their income and thus over-estimate what they will be able to realistically afford in monthly payment, once they graduate.
  
• Any debt which comes as a surprise at the time required repayment begins
  

For an individual student, at a specific school, with specific occupational and earnings outlooks, there most likely is a threshold beyond which debt is not manageable and is hence unreasonable. There is general agreement that as debt exceeds 15% of gross income it becomes more difficult to manage. The key to determining the exact threshold of debt manageability for a specific person is the borrower's prospect of achieving their goals while assuming their loan repayment.

EDWISE™, the online financial planning guide at ( www.edwise.org), can help you take much of the guesswork out of managing money. By plugging in projected loan amounts, estimated expenses and earnings for a future career, students can estimate how much they can afford to repay. EDWISE™ also offers clear, concise planning information to help students calculate efficient ways to manage their finances, along with a printout of your financial plan.

Loan Repayment Ratios Chart