An insider's guide to student loans

There are two essential things you need to know about student loans:

• Lenders will give you every dime you need to pay for just about any education you desire.

• Just because you can borrow doesn't mean you should.

It's not that student loans are bad. Two out of five undergraduates need some kind of loan to get through school, and a reasonable amount of debt can be a good investment in your future.

Lenders, however, will give you far more money than you can comfortably repay. That's true even with recent improvements to federal student loan programs, which cut rates and installed income-based repayment plans.

Also, you should realize that once you take out student loans, the debt can follow you for life. Student-loan debt typically can't be erased in bankruptcy court, and there are no statutes of limitation that limit how long private lenders can pursue you for collection.

So it's up to you to set limits on how much you'll borrow and search for the best possible deals.

How much should you borrow?

If you're a student, you should generally limit your debt so that your loan payments after you graduate don't eat up more than 10% of your expected monthly income. Figure you'll pay $10 to $12 per month for every $1,000 you borrow if you repay the loan over a 10-year period.

If the math makes your head hurt, you can just use the rule of thumb that you shouldn't borrow more in total for your education than you expect to make your first year out of school.

By Liz Pulliam Weston