Student loan debt: how much is too much?

Student loan debt: how much is too much?

Today, many students end up graduating with some amount of student loan debt. If you’re a college-bound student (or parent of a college-bound son or daughter), you might be asking yourself, how much student loan debt is too much?

Well, that amount is different for everyone. But there are things you can do to educate and empower yourself while you calculate a recommended student loan limit to help reduce the amount of debt you or your child incurs.

Challenges of Paying for College

Your goal should be to finish your education with a student debt level that you can manage based on your post-education income. Obviously, the best position you can be in when you graduate is having little or no debt at all. Unfortunately, this is no longer a possibility for the majority of students.

The problem is, many students take out student loans without knowing how they are going to repay the debt. Worse, they might not realize how much debt they are piling on and will need to repay.

What’s the Typical Amount of Debt?

According to Student Loan Hero, an organization that helps borrowers manage and eliminate their student loan debt, the average 2016 graduate has a student loan debt of around $37,172.

Other related statistics reveal:

  • A $351 average monthly payment for a student loan for individuals between 20 to 30 years old
  • A $203 median monthly payment for a student loan for individuals between 20 to 30 years old
  • Around 44.2 million individuals in the U.S. with student loan debt
  • A total of $1.44 trillion in student loan debt in the United States
  • An 11.2 percent student loan delinquency rate with students being 90+ days in default

Student loan debt can be a burden. So if you can’t afford to pay for your college education out of pocket, what are your options?

Avoiding Debt

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

As a student, repaying your student loan may feel like it’s far away into the future. But, that monthly bill will eventually creep up on you. By knowing and understanding the numbers, you can make an educated decision about taking out a student loan.

Setting Proper Debt Levels

It’s important to set up proper debt levels for yourself. A good rule of thumb is to not take out a student loan that's more than your anticipated annual salary.

For example, if your debt is likely to be similar or more than the average of $37,172, it’s prudent to have a starting salary that either matches or exceeds that number. This will put you 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.

Set Up Your Budget

Set up a budget that’s based on the salary you anticipate to make once you’ve graduated from college. A great way to get an idea of the average starting salary in your chosen field is to check out websites like the U.S. Department of Labor's Occupational Outlook Handbook and Salary.com.

Once you know how much you intend to borrow, you should ensure your loan—along with other anticipated debts like car or rent payments—doesn’t exceed 33 percent of your anticipated future income. If your student loan and other debts make up more than that 33 percent, look for other alternatives.

So let’s recap. You should always strive to get as much "free" help you can with grants, scholarships, and tuition discounts. You should learn as much as you can about the prepayment plan of your loan so you can make an informed decision. And finally, you should remember not to take out more than you expect to make annually once you’ve graduated.

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