How Much Is Too Much Student Loan Debt

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Despite all the calls for free college and broad student loans, high school seniors will be borrowing to pay for school this summer. Sure, they might get a few scholarships, a grant or two, or some help from mom and dad. However, the high cost of college tuition (plus room and board) usually requires some help from federal student loans.

How Much Is Too Much Student Loan Debt

But how much student debt is too much? It depends on who you ask. In reality, the “right” amount of student debt depends on each borrower’s risk tolerance, their goals, and the lifestyle they want to live when they graduate.

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In a perfect world, the average student loan debt would be $0 because college would be free. In the world we live in, each person has to decide how much debt to borrow and make decisions accordingly.

How do you decide where to draw the line? A few simple equations provide a good place to start.

According to student loan expert Mark Kantrowitz, author of How to Appeal for More College Financial Aid, one rule that can help you avoid taking on additional debt is limiting how much student loan debt can add to your income. First year from college.

“If your total student loan debt at graduation is less than your annual starting salary, you should be able to pay off your student loans in ten years or less,” he says.

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“Otherwise, you’ll struggle to make student loan payments and need extended repayment or income-based repayment to afford the monthly student loan payments. These repayment plans reduce the monthly payment by making the repayment term 20, 25 or 30. years.”

While it’s hard to know exactly how much you’ll earn in the first year of your career, you can get a general idea by using tools like the Bureau of Labor Statistics’ Occupational Employment and Wage Statistics Portal. Once here, you can learn the average annual wages for a range of jobs across the country. You can also filter your search to find wages for different states and metropolitan areas, or to find the median wage for the bottom 25% of earners in any occupation.

Making sure your monthly payment makes sense with your future income and budget is another strategy that can help limit taking on additional debt. Scholarships360.org founder Will Geiger said this makes sense because it helps students understand what their loan payments will look like in the future, as well as how to reconcile that with their future income.

“For example, a high monthly loan payment may be manageable for an accountant or engineer, but difficult for a social worker or musician,” he says.

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How can you track your student loan payment? To decide how much to borrow, you should probably start by calculating the payment on a standard 10-year repayment plan. A student loan calculator can help you do this.

While the two strategies above can help you zero in on the amount of student debt you can tolerate, there are a few strategies you can use to take on less debt in general. For example, Kantrowitz says you want to start by comparing colleges using total cost, which is the difference between total college costs and gift aid like grants and scholarships.

“It’s money you have to pay off from savings, contributions from income, and student loans,” he says, adding that there’s a strong correlation between net worth and student loan debt.

Once you’ve completed this analysis, you’ll have a better handle on which school you’re considering.

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Borrow only what you need, Kantrowitz says, and don’t borrow as much as you can. In other words, don’t take out extra student loans to pay for creature comforts, vacations, or anything else unrelated to school. By taking on less debt now, you can secure lower student loan payments that will leave you with more money so you can afford a better lifestyle later.

“Live like a student while you’re in school so you don’t have to live like a student after you graduate,” Kantrowitz says.

Federal student loans offer low fixed interest rates and flexible repayment terms, so consider borrowing federally first. In the meantime, sign up for AutoPay so your monthly student loan payment is transferred from your bank account to the lender, Kantrowitz says.

“Not only will you be less likely to be late on a payment, but many lenders will lower your interest rate by 0.25% as an incentive.”

How Much Is Too Much Student Loan Debt?

Kate Winget, corporate head and workplace engagement at Morgan Stanley. It points out that employers can offer up to $5,250 each year for qualified educational expenses, such as tuition assistance or student loan payments. Not only is this benefit tax-free for the employer, it is also tax-free for the recipient.

When it comes to avoiding excessive student loan debt, an ounce of prevention is worth a pound of cure. Life changes

It’s easy when you consider how much you’re borrowing for college before you start. If you wait until you’re already in school, it’s too late to take many of the steps you could have taken to keep debt at bay.

Your best bet is to research college costs, college options, and investing in college degrees before you apply. College can be expensive, but you have to run the numbers so you know for sure. Free Article Join over half a million premium members and get more in-depth stock guidance and research.

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A good 43.5 million Americans owe money in the form of student loans. With the average student loan balance surpassing the $37,000 mark, it’s easy to see why that debt can be such a burden for so many people.

If you’re looking into colleges or graduate programs, you may be wondering how much student loan debt you can afford. The truth is, there is no preset formula to answer that question. But if you follow these two rules, you can set yourself up to avoid financial hardship when it comes to repaying your student loans.

A general rule of thumb is that your total student loan balance should not exceed your expected starting salary out of college. So, if you expect to make $50,000 the first year after college, based on your desired career, you don’t want your student loan balance to exceed $50,000.

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This rule is good to follow in limited situations, but you are sure of what you want to do after you graduate. If you don’t know what career you want to pursue, your best bet is to research the average starting salary of all college graduates and use that as your personal benchmark.

But if you know you want to go into advertising, you’re better off starting with a salary in that industry based on your preferred geographic location. From there, you can determine how much to borrow, keeping in mind that the average entry-level advertising role pays $62,000.

Some jobs don’t pay much right away, but can pay a lot over time. So it’s important to look at the big picture when deciding how much student debt to take on.

Let’s say you’re thinking about going to medical school. The average total cost of medical school is $218,792, according to the Education Data Initiative.

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Obviously, that’s a lot of money, and many medical school graduates don’t make it through their first few years on the job while doing their internship. However, in this type of situation, you’ll want to look more at lifetime earnings than recent earnings.

Based on the field you plan to pursue, let’s say the average post-residency salary is $250,000 per year. This makes it much easier to justify a student loan balance of about $219,000.

Taking on too much student loan debt can ruin your financial situation. Whether it’s buying a home or retiring comfortably, it can derail the financial goals you’ve set for yourself. Unfortunately there is no exact science to calculating how reasonable a loan balance is. But if you follow these two rules to the best of your ability, you are more likely to borrow an amount that is not overwhelming.

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How Much Student Loan Debt Is Too Much?