How Much Student Loan Debt is Too Much?
It’s no surprise that students wonder how much student loan debt is too much. Across the United States, 44.7 million people owe $1.7 trillion in student loan debt. Student loan debt can take decades to pay off, and can take a huge chunk of your income. Fortunately, there are many ways to determine how much debt you can afford to take on. Continue reading to learn more!
Consider your expected salary
One of the first things students should consider when deciding how much debt they can afford is their expected salary in the first year after graduation. Research the expected annual salary of people with your major. The Occupational Outlook Handbook from the Bureau of Labor allows you to search the median pay and projected growth rate of a number of careers. If you’re undecided on your major, know that the average student loan debt is $37,000 and the average post-grad salary is $40,000.
Many schools also offer information on the average salary of graduates. The College Scorecard from the Department of Education provides information on costs, graduation rate, loan default rate, average amount borrowed, and employment rate for a given school.
Students should aim to keep their debt balance below their expected first-year salary. If your total debt is less than your annual income, you will be on track to pay off your debt within 10 years. Another rule of thumb is to keep monthly loan payments at between 8 – 10% of monthly salary. The federal government recommends that student loan debt should not exceed 15% of income.
Know the details of your loan
Before signing the dotted line, be sure that you know the details of your loan. Take note of the overall balance, interest rate, repayment plan, and repayment flexibility. Compare these factors between lenders before deciding which one to go with.
In general, you should start with federal loans. These loans have a lower interest rate, and they offer more relief plans than private loans. However, not everyone is eligible for federal assistance, and federal loans have a $31,000 borrowing limit. Be sure to shop around before turning to a private loan and select the lender that best fits your needs.
Set a budget
If you do choose to use student loans to fund your education, be sure to use them wisely. Use student loans for only essential expenses. Try not to include all of your living expenses or recreational expenses in your student loan budget. This is also a great way to start forming good financial habits in the future.
Find other funding options
There are many alternative options to student loans as well as ways students can supplement their funding. Research your eligibility for scholarships and grants through your school or other organizations. Many states also offer state-specific scholarships.
Students can also apply for college-specific scholarships once they are in school. For instance, many colleges offer departmental scholarships to students who are studying in a particular major. Many of these scholarships will only be available to students who are sophomores or above. This means that if you do have to take out a small student loan their freshman year, you may be able to replace that with a scholarship in subsequent years.
See also: Scholarships by state
Another option is to take on a part-time job while you’re in school. This extra income can allow students to pay for their living expenses, like rent or utilities, without taking out more loans. Working can also give you the chance to save up some money for when the time comes to start repayment.
If you’re concerned about balancing a job and your studies, work study is also an option. Work study is offered through most schools, and these jobs are more flexible with students’ school schedule. Many colleges also have a student employment office where students can find part time jobs.
See also: How to make money in college
Consider your options while keeping the future in mind
When it comes time to fund your education, it can be hard to imagine where you’ll be in the future. This mindset can cause students to borrow more money than they can afford.
Overall, the amount of student loan debt one can afford is a personal decision. It can be based on the above factors as well as family contribution and the school you go to. If you do plenty of research and consider all your options, you will be well-equipped to make the right moves to fund your education!