How much debt to allow?

Parents Forum
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<p>First of all, this is a very personal question with a very personal answer tailored to your financial philosophies and situation. Too many people I know take the college payments and loans part of finances separate from the rest of their money. You can "beat the system" in financial aid and adversely affect the rest of your finances.</p>

<p>My personal opinion about loans is that the Stafford limits are a good guide. The amounts increase as the student goes further through school to take into account increases in tuition. It is also approximately an average of what student debt runs. You can get an idea of those figures by running through USN&WR student debt numbers. </p>

<p>So in our case, we were looking as a guideline for our S, loans of $5500 his first year which we would match with $5500 in PLUS loans. He had savings and jobs for the summer after graduations. Did not work first semester as a freshman but now has a job 10 hours a week this second semester. He figured that he could comfortably pay about $3K this first year. We had savings and our budget allowed for some payments too. $40K was the most we felt we could pay without running into issues.. $30K was our comfort zone. College had a COA of $47K, but they threw in a $10K merit award and he got a $5K outside award that made his first choice within range. We did make changes to our original plan, but it gave us a good starting point and we were aware how far we were straying as we made changes. </p>

<p>This term he is netting about $50 a week from his job. Just found out by working brunch shift at the cafeteria, he could eat for free that meal and earn some money there. Also is doing a dinner shift on a light day which means 3 out of 21 meals are now paid and he gets another $30 in pocket for the week. He has managed to get most of his books from the library, and his job allows for free copying and some school supplies which is putting him in good shape. He intends to work during spring break and will double shiff over the summer. He could have taken out less in Staffords, but we asked him to take the maximum and we will take care of the excess since his interest rate is better than the PLUS rate we would get.</p>

<p>Had he gone to one of the choices that was expensive and did not give him any merit money, he would have had a COA of $54K with only the $5K outside award. That would have meant $38 K would have had to have been paid out of his and our savings and incomes after the $11K in loans. Sure enough, it was about $15K outside of our comfort zone.</p>

<p>Even though this came out lower than our max, it's been tough. Unexpected and unbudgeted expenses always come up. With the buffer of his jobs, he has been able to go skiing, expensive. H and I spent a few days out there to visit and look around when he moved into the dorms which was expensive and not in the budget except as a plane ticket for him. I spent a lot in the bookstore for souveniers and visited Target for, God only knows what for his room. We want to visit this spring as well. He took advantage of some things before school that cut short his summer earnings and cost money as well, something well worth it but expensive, none the less. We also forgot to budget in graduation for S2 who will finishing up this spring, and we will spring for a trip up to his school which means travel expenses, hotel, food, celebration,gift, none of which we had in our projected budget.</p>

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<p>I don't think I saw anyone mention this possibility. What if the student marries someone with college debt also? Now this student who could manage his own debt now has an additional debt load to manage. Not so easy. </p>

<p>Also, I personally think that it is a huge assumption that any student will start and end college with the same major. </p>

<p>Life has so many variables and surprises. Debt however does not go away until it is paid.</p>

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<p>It USE to be that when applying for a home loan; there was a formula that was set that you couldn't QUALIFY unless the rest of your debt was below 28%. Well; that went down the toilet with the whole; Give home loans to anybody, especially the poor, even if they can't afford it. But, the general consensus among financial planners, investment professionals, and most importantly, those who have been through this is;</p>

<p>Don't go into debt for more money than you can pay back; based on your projected STARTING SALARY; in a 5 year period. Which basically is about 80% of the starting salary. If you believe that your starting salary will be $50,000; then an educational debt of $40,000 would be fine. You should be able to take $8,000 each year of your paycheck for 5 years and pay back the loan. Remember; at 22-26 years old coming out of college; you have a LOT MORE EXPENSES than you realize. Establishing a home, moving expenses, setting up furniture and whatever in the house, maybe getting married, etc... Anyway; the goal is to be able to pay back all educational debt in 5 years or less. That would mean the debt should be NOT BE more than 80% of your starting salary. good luck.</p>

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<p>bookreader, that's an extremely important point. One that we as parents don't have much control over...actually none.</p>

<p>My son graduated with about $40K loan from a 5 year masters program, with "employable" degrees. It wasn't easy to get him out of school (a private U) with "only" that size loan...took a lot of scrimping and sacrifice on our part. I don't regret any of it.</p>

<p>Along comes GF, who is wonderful. They live together, are mid twenties. Perhaps they'll get married. Her loan is at least double his (they both have jobs, he makes considerably more than she). He fully understands if they get married, it'll be his loan too. Do I think they shouldn't get married because of her loan? Of course not. Not my problem, I know, but it does cause me some slight concern.</p>

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<p>Not everyone who starts out in engineering ends up in engineering. Especially not at top schools.</p>

<p>Texas A&M culture is interesting and different; the kids who go there seem to love it. My D has a friend who goes to A&M and went with the friend to the A&M rally on the steps of the capitol the night before the UT vs A&M game. D really enjoyed seeing that "sort of military" school spirit in the corps of cadets. Said the kids were having a lot of fun.</p>

26

<p>The federal government has limits on what it will lend a student without a cosigner. The maximum is the Stafford Loan (+$4000 if parent cannot get PLUS) plus the Perkins loan. The amount goes up a bit as the student goes on through college. </p>

<p>Your kids' future spouses can come with a lot worse baggage than school loans, I assure you.</p>

27

<p>As of now our S a sophmore will have the Stafford loan to pay off as his own investment of his education. He is now looking at doing a 5 yr masters program and if that happens, we will have to discuss the payment of that extra year. His investment will definately go up, but we hope to be able to help as much as possible. He is a materials science engineering major at a private school.</p>

28

<p>it is very personal question. We decided for no debt. other families might have reasons for debt yo be OK. Interesting that D. was also accepted to Case Western, which was her #1. tuition would be $5000 / year after scholarships. D has chosen #2 on her list for a reason unrelated to financial situation. She is very happy there. Do not let one criteria to decide.</p>

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<p>I would think that you've already filled out your FAFSA. The turnaround time to get your EFC was pretty quick for me.</p>

<p>I personally think that anything over $50K is scary debt for a young person to start out adult life with.</p>

30

<p>"I would advise any kid from having more than $50,000 in total debt upon graduation from undergraduate school."</p>

<p>That's a pretty good brick wall. I can't imagine any circumstances where I would support a student's decision to take on more debt than that.</p>

31

<p>--"He will have the ability to pay back his loans." --</p>

<p>His earning power after graduation is something you don't know, regardless of major. You can't count on him making what you think/wish he will. In my opinion it should not be part of your decision making process. It's easy to assume the best, but you have no idea what the reality will be.</p>

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<p>
[quote]
His earning power after graduation is something you don't know, regardless of major. You can't count on him making what you think/wish he will. In my opinion it should not be part of your decision making process. It's easy to assume the best, but you have no idea what the reality will be.

[/quote]
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<p>Nothing is certain in life except for death and taxes (or prison).</p>

<p>I hope you don't run a business. Owners are always making the best decision they can with the imperfect information they have.</p>

<p>"His earning power after graduation is something you don't know, regardless of major" - So why bother going to college? Why spend all that time and $$$'s if you don't know that you will have a better job than if you just started working right away? After all, Bill Gates dropped out of college after 2 years, and look at where he is now.</p>

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<p>
[quote]
His earning power after graduation is something you don't know, regardless of major. You can't count on him making what you think/wish he will. In my opinion it should not be part of your decision making process. It's easy to assume the best, but you have no idea what the reality will be.

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<p>That really is a lame excuse. I am definitely not one for wasting money on an over priced education, but you definitely the range of income you are capable of making after graduating. To not consider that in your educational decisions is reckless and straight up irresponsible. There's a big different between wanting to get a degree in political science and then Chemical biology- at Harvard; and guestimating your potential worth; and getting a degree in mythology and graduate school in African-African American Studies. One has a better chance or getting a job that can easily pay off loans than the other. "You decide which one".</p>

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<p>agreeing with anxiousmom here, I would limit student loan debt somewhere in the $20k area. Depending on your family situation, you as parents might be able to take on additional debt to finance your student's undergrad education.</p>