How Much Student Loan Debt is Too Much?

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As a student (or a parent of a college-bound son or daughter), you may be asking yourself how much student loan debt is too much. You are not alone. While the amount is different for everyone, there are things you can do to calculate a recommended student loan limit and reduce the amount of debt you or your child incurs.

Challenges of Paying for College

Most all students end up graduating with some amount of student loan debt. Your goal, however, should be to finish your education with a student debt level that you can manage based on your post-education income. The best position you can put yourself into is by having little or no debt at all by the time you graduate and enter the workforce. Unfortunately, this is no longer a possibility for the majority of students.

Many students take out student loans without knowing how they are going to pay the debt back. They might not realize how much debt they are taking on and committing themselves to repaying.

Current Student Loan Debt Profile

According to, 64% of students are graduating college with debt. The average student loan debt is $40,499, representing a 3.5% increase from the year prior.

Other related statistics reveal:

  • Around 17.4% of American consumers have student loan debt.
  • A total of $1.766 trillion in student loan debt in the United States.
  • Roughly 5% of all student loan debt is in default.

Many college students think of student loans as a sore subject, particularly with tuition steadily increasing nationwide. Moreover, this continued escalation of costs is not going away anytime soon. So what is a student who cannot afford to pay out-of-pocket for their college education to do?

Avoiding Debt

The best approach you can take is to do all you can to take advantage of non-loan financial aid while you also minimize your costs before you get into college and during your years there. If you are a high school student who's investigating your college options, then you can shop around for colleges that offer generous tuition discounts, grants, scholarships, and work-study programs, rather than encouraging their students to take out school loans and over-borrow.

Before you take out a student loan, learn the details of your repayment plan, including:

  • The length of time you will be paying off the loans.
  • The interest rate you will be paying.
  • The monthly payments you will likely be facing.

Although a student loan repayment may feel like it is far away into the future, that monthly bill will eventually creep up on you someday. So, by knowing and understanding the numbers, you can make an educated decision about taking out a student loan.

Setting Proper Debt Levels

It is important to set up proper debt levels for yourself. To start, it is a good rule of thumb that you do not take out a student loan that's more than your anticipated annual salary.

For example, if the average student is in debt by $40,780, and yours is likely to be similar or more, obtaining a starting salary that either matches or exceeds that number is prudent. As long as you obtain a salary that exceeds your student loan debt, you will be in a better position to handle a 10-year repayment plan. However, if your salary is lower than your debt, you may have problems handling the monthly payments.

The logical extension of that rule of thumb is that you should find a field of study that will provide you with a level of income that will comfortably allow you to repay your loans. The flip side of that, of course, is that you not take on too much student loan debt if your chosen field of study will not pay enough to allow you to repay those loans.

Also give strong consideration to the institution where you plan to obtain your degree or credential. Will earning a degree from an Ivy League school pay itself off with your major of choice? Will your income be sufficient to pay back your student loans?

Set Up Your Budget

You should set up a budget for yourself that is based on the salary you anticipate to make once you graduate from college. To get an idea of the average starting salary in your chosen field, check out websites like the U.S. Department of Labor's Occupational Outlook Handbook and

Once you come up with how much you intend on borrowing, you should ensure the loan amount, along with other anticipated debts like car or rent payments, does not exceed 33 percent of your anticipated future income, advises Millstone Evans Group of Raymond James & Associates financial advisor, Rita Johnson. If your student loan and other debts make up more than that 33 percent, look for other alternatives.

To recap, strive to get as much "free" help you can with grants, scholarships, and tuition discounts. Learn as much as you can about your prepayment plan of your loan so you can make an informed decision. Don't take out more than you expect to make annually once you graduate from college. If necessary, you can take on a part-time job while in college to keep your student loan debt from increasing due to interest.

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