How much is too much in student loan debt?

I have heard a rule of thumb and tend to believe it - that students should not borrow more than their expected first year salary to pay for college? Does anyone have data to support this claim or where it came from?

Students can’t borrow more than ~$27k on their own. To get more, parents have to cosign. I don’t think parents should help their students borrow more than the federal student loans unless they can afford to repay them based on their current income. Too many students change majors or get weeded out and end up in careers where the projected income is lower than what they originally calculated.

Rules of thumb generally don’t have data. I agree with @austinmshauri to keep it to the Direct Loan amount.

Students can borrow more through Perkins loans, through some state programs,through extra Stafford loans if the parents don’t qualify for Plus loans. Not saying they should borrow more, but it is possible to do so.

It is easy to get into debt. It is not always easy to get out. I think that it is our responsibility as parents to educate our kids about debt and living within your means.

Keep in mind, if your kid has 60k in debt and have a 60k job , he could very well be financially struggling because he may not be bringing home enough money to service his debt and live on his own (unless he is living with roommates). Hey would be paying approx 670 a month from his after tax income to service the loan. he should also be taking the opportunity to max out his employer 410/403b plan

Depending on where he lives after graduation, especially if it is in a high cost city, he could still be struggling to service his debt.

I would say
try not to borrow more than HALF of your expected first year income because many students have ridiculous first-salary expectations
and they usually are naive about living expenses.

And, if the student is majoring in something that won’t likely pay much upon graduation, then try to borrow nothing!

Sometimes students (and parents) think, “the major will be engineering, so s/he can borrow and cosign for a lot more because salaries will be higher.” BUT
what if the student weeds out of eng’g or finds it’s not for him/her?

While I certainly have kept my son’s potential starting salary in mind whenever considering loans, I would say in his case at least, taking out his first year’s expected salary would be an extremely bad idea. In his case, anticipated starting salary in not super impressive but I can’t imagine even with a good starting salary that you’d want to be saddled with so much debt. Because the nicer your first job, the nicer the stuff your going to be wanting to buy - whether its furniture, clothes, nights out whatever. Making a nice wage and not being able to spend a big chunk of it because you had to send it to the student loan people would not be fun at all.

Our goal is to keep loans as low as possible but I do like @mom2collegekids idea of no more than half. Someone recently recommended to me that the senior year federal loan could be used as launch costs and if he makes it that far without taking much in the way of loans, we will certainly consider that.

My daughter who will likely make a higher wage will have very low student loans because of scholarships and, hopefully, a good internship as she’s in engineering. Daughter who is a ‘theater then art history now history’ major’s projected first salary will be a little over minimum wage. She has a greater need for student loans because her scholarships are lower and her student job salary is minimum wage.

Not borrowing more than your first year salary is a nice theory that doesn’t really work out in real life.

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I’m sorry, this may be a stupid question, but where do you get the 27k number from @austinmshauri? Is that the 4-year amount?

@twoinanddone That’s about choices. Fine that your family made that choice but great that posters are advising others against taking the route you chose for your family. No offense.

@LiberaCivitas, Sorry, I should have included a link. Go to the [Federal Student Aid](https://studentaid.ed.gov/sa/types/loans/subsidized-unsubsidized) site and scroll down to “How Much Can I Borrow?” The student loans we usually talk about are the Stafford Loans you can get by filling out the FAFSA. The amounts undergrad students can receive are $5500 as a frosh, $6500 as a soph, and $7500/year as a junior and senior, or $27k total.

The school can offer a small additional loan through the federal [Perkins Loan](https://studentaid.ed.gov/sa/types/loans/perkins) program, but I don’t think it’s much. You have to have “exceptional financial need” to receive it. Not all colleges offer it and not all students who are eligible receive it because there’s usually not enough to go around.

On a side note, Perkins loans have apparently made it difficult for some students to figure out repayment schedules.

http://www.dispatch.com/content/stories/local/2016/08/28/multiple-student-loan-types-complicate-payback.html

Parents need to keep in mind that the more their child borrows, particularly if he/she isn’t likely headed for a well-paying career, the more likely he/she will be living at home after graduation because paying rent and paying loans won’t be affordable.

I don’t think it is so much about choices but need. It’s fine to have a goal of only borrowing the amount of a first year salary, or half of that. I’d love that, I think anyone would. So you have the future engineer who is expecting to make $50k her first year and so the wise posters think it is okay for her to take $25k (or even $50k) in loans. That allows a lot of choice, and this student might also be able to get an internship paying $25/hr as a junior or senior in college, perhaps making loans unnecessary for those last two years.

Then you have the liberal arts major who has no idea how much she’ll make after graduating, so should estimate first year earnings at minimum wage, or ~ $20k per year. Half of that is $10k. Where is this student supposed to go to school for four years for $10k?

I’m not saying it’s ideal, just that the ‘borrow no more than the first year salary’ doesn’t work even as a general rule since the minimum wage earner might need to borrow the whole Direct loan amount of ~$27k. College costs the same no matter what your first year salary is, and who knows what that salary will be? I definitely want my liberal arts major to borrow less, to keep her debt as low as possible. It just turns out that her debt will be higher than her sister’s because of scholarships and work opportunities available to the STEM major.

I think ALL students should borrow as little as they can get by with. I think some should take a break from college if they need to to earn more rather than borrow more. No everyone has the same starting point, parent who can help, the same job opportunities.

It is really painful at the low end of the salary scale. DO THE MATH:

Annual salary: 30,000 ($15/hr)
Net after federal tax, FICA, Medicare: 2100/month

Student loan principal: 30,000
Monthly loan payments: ~310/month for 10 years

Remainder after making loan paymt: 1700/month
And I haven’t even subtracted state & local income taxes.

In contrast, while a person with a 30k job would struggle to make payments on a 30k car note, there’s the option to escape the burden by selling the car. For an unsecured student loan, there’s no collateral to liquidate.

Federal student loans are dischargeable upon death, but not private student loans. Private student loans are more eternal than love.

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@twoinanddone Again, it’s about choices. Unfortunately, not everyone can afford a 4-year college. I’d recommend pursuing other options/different route before taking on the kind of loans you are advocating as “necessity.”

You seem to have omitted the contributions by parents from savings & present earning, and the contribution by student from summertime earnings and possibly work/study.

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you have the liberal arts major who has no idea how much she’ll make after graduating, so should estimate first year earnings at minimum wage, or ~ $20k per year. Half of that is $10k. Where is this student supposed to go to school for four years for $10k?


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That’s assuming that the family is contributing nothing and that the student isn’t contributing anything.

If the family is low income, then there are grants. If the family isn’t low income, and no grants or merit is awarded, and the family won’t pay a dime, then the student with education goals which will yield a $20k per year job needs to “get creative” so that little debt is needed. That may mean getting many AP credits or dual enrollment credits in high school and/or commuting to the local CC
and then commuting to the local Univ. It may mean seeking a job with “education benefits”. It may mean working full time and going to school part time.

After all, how is a young person supposed to live on their own AND make loan payments on $20k per year?

The idea that a student with modest income future job prospects should borrow a good bit of money just so that they can have the “sleep away college experience,” is often short-sighted.

When did “sleepaway college” become an entitlement?

^^No, I’m just answering the original question, which is that the rule of thumb is that a student should not borrow more than the expected first year’s salary, and why is that and where there any statistics to support that.

Another ‘rule of thumb’ is that the student should take out no more than the Direct loans of ~$27k over the 4 years. It’s actually more than just a guideline since most students really can’t take out more than that. The government doesn’t base the limit on future salary, and every student gets the same amount no matter how much tuition is or what their majors is.

Follow the first rule, and a student expecting to make $10/hr or just over minimum wage and the max loans would be $20k. Follow the second and that student could budget for $27k.

Just the opposite, many student who expect to make $60k may have the opportunity to make more while in school than the students who estimate they will only make $20k per year after graduation. The $60k kids probably have internships and co-ops to make more while in school so they don’t have to borrow as much. The $20k kid is struggling on a work study wage while the STEM major is making double that during the school year and during summer internships. The $60k kid is making more, needing to borrow less, but the ‘rule’ is that he should fine with borrowing up to $60k. The $20k kid is working and being told to limit borrowing to no more than $20k over 4 years, while his rent, board, tuition and costs are the same as the projected higher earner. The $20k kid probably needs that full $27k in direct loans.

I assume the parent contribution would be the same for the future engineer as the future history major. That’s how it is at my house, so all other things being equal, they’d have to borrow the same amount to pay tuition at the same school. Their loans have nothing to do with what their future earnings are but everything to do with what their current tuition is.

We chose an affordable school for the history major knowing the maximum in loans would be $27k, but really we chose a school for the engineer with the same restrictions, knowing that the maximum for loans for her would also be $27k, and not the ‘rule of thumb’ of her first year salary. The COA for the engineer is actually more than double than the history major, but the OOP is less, and that was all figured into the school choice.