# Borrow Wisely

With your spending plan in place, determine how much money you need for the year. If you're tempted to borrow more than you truly need for the unexpected, just remember that loans must be repaid with interest. It's extremely important that you borrow ONLY what you really need. Loans should be used to pay educational expenses, not for pizza, coffee, and other incidentals.

How much will you owe by the time you graduate? To get a rough estimate:

• First, find your total existing debt by adding up your total amount of the loans (on the money you must pay back) in your aid package for this year.
• Now, use this annual amount to estimate how much you will need to borrow over the next four years by multiplying times four or the number of years required to finish your degree program.

FinAid.org offers calculators to help you figure out your monthly loan payment (excluding any fees) based on the length of your repayment plan, which usually ranges from 10 to 30 years. When you determine your repayment timeline, look at what interest adds to the total cost of the loan. Extending the repayment period of a loan will lower your monthly payments, but adds substantially more to your original loan amount.

Using FinAid's online calculator, we can compare a \$19,000 loan at 6.8 percent interest paid over two repayment periods: 10 years and 30 years. As the chart demonstrates, paying an extra \$94 per month will save nearly \$18,000 when you opt for the shorter repayment period. Your monthly payment may be half the amount by taking an additional 20 years to repay, but you pay \$18,349.81 more for the exact same amount of money.

Loan term Monthly payment Payments Total payments Total interest
10 years \$218.65 120 \$26,238.45 \$7,238.45
30 years \$123.87 360 \$44,588.26 \$25,588.26