How Much Is Too Much College Debt?

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Over 44 million Americans walked away from their time in higher education with some amount of college debt. The total amount of student loan debt collectively carried by college students and grads today is $1.45 trillion , and the average 20-something-year-old borrower pays $350 per month on their loans.

There’s no question about it: student loan debt is a serious financial burden for many students, parents, and newly-minted grads.

Whether you’re considering college costs for a family member or want to go back to school yourself, you likely want to avoid dealing with student loan debt thanks to statistics like this and harrowing news items that detail individuals who are struggling to handle their tens of thousands — or even hundreds of thousands — of dollars’ worth in college debt.

But debt isn’t inherently bad. In fact, student loans can be useful tools to use as leverage. The real question is how much is too much college debt, and when does it shift from useful tool to financial anchor holding you back?

USING STUDENT LOANS AS PRODUCTIVE FINANCIAL TOOLS


There’s a lot of fear and uncertainty around student loans. But this kind of debt can actually be useful to you or your student. Here are some reasons why:

Student loans allow you to leverage your cash flow . Instead of shelling out for the cost of college in cash — and potentially leaving you vulnerable to other unexpected expenses and emergencies — student loans allow you to gradually pay for college over time in a way that doesn’t stress your liquidity as much.

You can pay down debt and continue saving . In addition to not needing to drain your savings accounts, the fact that you can pay back student loans over time allows you to balance that responsibility with the responsibility you have to yourself to save for the future .

Student loans can help students build their own credit . If your teenager is headed off to college, taking out a loan can help them build their own credit (which they’ll need as adults in the real world). This is a less risky way to help them than providing them with a credit card, which can be hard to manage and far more costly if they fail to make payments thanks to dramatically higher interest rates.

STILL, DEBT IS DEBT


If you’re reading this and thinking you now have the green light to take out all the student loans you want, think again. At the end of the day, debt is debt. And it costs you money to borrow and finance an education.

It might make more sense to avoid student loans altogether if you have the financial means to do so (or your student can help pay their own way, so you’re not on the hook for the entire cost).

But what if you are….

  • Considering emptying your savings accounts to cover college costs
  • Not saving for retirement so that you can save for college instead
  • Able to pay for college out of pocket through your cash flow, but just barely


    • If you find yourself in these situations, student loans can be a reasonable solution . Just make sure you understand how much debt is too much first.

    Related: Why Your Retirement Is More Important Than Saving for Your Kids Tuition

    HOW MUCH COLLEGE DEBT IS TOO MUCH?


    Let’s be clear on the obvious indicators of “too much college debt.” If you’re looking at debt that reaches into the six figures, it’s too much.

    Most grads won’t earn anywhere near $100,000 in their first year out of school, making this debt extremely difficult to pay off and a huge burden to handle financially. If your student is aiming for a career path that typically pays $40,000 to entry-level workers, $80,000 is far too much debt.

    How much of an income you can expect to make after college is the biggest factor in determining how much is too much. Here’s an easy way to start estimating an appropriate amount of student loans:

  • Research how much you (or your student) can expect to make after entering the workforce with a new degree. Don’t just look at old data from something like the Bureau of Labor Statistics — go on job boards like Monster.com or Indeed and search for open positions that you might qualify for after school and view what the starting salaries are for those jobs.
  • Look at how much a degree from a chosen university will cost. Include tuition, fees, room and board, and other common expenses like textbooks. Most colleges have information on average costs and expenses that you can use.
  • Calculate how much of that cost you can reasonably cover and determine how much in student loans you’d like to use to help finance your education.
  • Compare a reasonably expected salary to your expected amount of college debt.


    • If your expected amount of student loan debt is more than your expected salary, it’s too much. If it’s the same as your expected salary, it’s also likely too much (if you don’t want to spend the next 10 years paying off those loans).

    If you estimate that the amount of your salary is more than the amount of debt you plan to take on, it could be a reasonable financial move to make.

    Even when student loans can be used as financial tools, you need to be very careful about how much debt you take on. You also need a strategic plan for repaying it at the lowest cost possible before you start applying for loans.