Recommended loan limits

Parents Forum
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<p>I realize that this topic has probably been covered quite a few times on these boards. I tried searching but so many divergent threads come up when "loan" or "loans" are searched… Anyways, a recent post mentioned that many here recommend limiting a student's loan burden to the federal loan total of about 30K but that some advocate for a higher number based on an anticipated first year salary. Can anyone point me to a past thread that focused on that debate? If not, can we discuss it here? My son is a rising senior who won't be eligible for FA until year 3 when his sister will also be in college and we may get some at that point.</p>

<p>He has the stats to potentially get into a top school and is oriented towards STEM studies and career options - probably engineering, possibly finance. Yes, he's only 17 but he has, for better or worse, been pretty consistently focused on working towards a high paying career path (all coming from him, believe me…)</p>

<p>So, if he does get into a school like Penn or MIT or Michigan CoE would it be reasonable to expect him to graduate with more debt (some of it co-signed by us - or maybe even just owed to us…) than just the federal loans in his name?</p>

<p>Interested in reading about people's opinions and experiences on this. Thanks</p>

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<p>Here are two:</p>

<p><a href=“College debt question - Financial Aid and Scholarships - College Confidential Forums”>http://talk.collegeconfidential.com/financial-aid-scholarships/1561454-college-debt-question.html&lt;/a&gt;&lt;/p&gt;

<p><a href=“What should be the maximum acceptable debt for a undergraduate engineering degree? - Engineering Majors - College Confidential Forums”>http://talk.collegeconfidential.com/engineering-majors/1636267-what-should-be-the-maximum-acceptable-debt-for-a-undergraduate-engineering-degree.html&lt;/a&gt;&lt;/p&gt;

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<p>Obviously less is better, though someone who’s money focused will easily be able to pay back a 30K loan from 2 summer internships and whatever starting bonus they get. Could be that they could pay back much more than that. Amazon starting bonuses are 40K for instance (though you have to pay tax on that).</p>

<p>It’s hard to point to a single amount and say “that’s the maximum” or anything like that. It’s best to just keep it down as low as possible without significantly compromising his opportunities. </p>

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<p>The percentage of students who get highly paid summer internships or large signing bonuses on graduation is probably far less than the percentage of Harvard applicants who get accepted. </p>

<p>Don’t base borrowing on pie-in-the-sky ideas of the ideal job/paycheck that you hope your kid will get in the best of all worlds. If that is your thought process, then forget loans and invest in lottery tickets instead.</p>

<p>Base the loans on the salary level that is pretty much guaranteed (low end) assuming your kid can get a typical, post-college entry level position. Keep in mind that those top-level job offers go to top-level students – and there are plenty of kids who drop out of an engineering track because they can’t get up, and others who muddle through with a C average. </p>

<p>So probably around $30-$40K at most. I personally think that’s high – my d. kept her loan burden below $20K. Both of my kids have had to borrow money for grad school. </p>

<p>If your son has the stats to get into a “top” school, then he has the stats to get merit money from a good, but not “top”, school. </p>

<p>If you don’t qualify for need based aid with only one in college, then you should have the financial resources to help your son avoid all but minimal loans, at least if he opts for an in-state public. </p>

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<p>Probably. If you restricted your domain to only those who are looking to make as much as possible, you’ll see something very different. Many have different motivations than TC’s son.</p>

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<p>“some of it co-signed by us - or maybe even just owed to us”</p>

<p>So are you saying you could loan him the money? </p>

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<p>@calmom, I must say I totally disagree (based on my experience - albeit somewhat limited)</p>

<p>Data point:

  1. We pay our interns $25 an hour. We are not even a s/w company.
  2. My niece was paid $25 an hour after her sophomore year and $29 after her junior year. She is in s/w, though.
  3. Many interns at top-tier companies (google, facebook, et al) are paid even higher.
  4. My niece employment package had $10K sign-on bonus or up to $50K in relocation reimbursement. I proposed that she used me as her mover (charging $10K an hour - since she only needed to relocate about 50 miles) and then split the difference. She refused. L-) I think her sign-on bonus is on the low side.
  5. It is common to be granted RSU when you start (in the range of ~500 for a new BS/BA) vesting over 3 years. We know several kids who join ebay. Ebay is about $50 - so this is about $25K over 3 years (of course, Uncle Sam needs to take a cut)</p>

<p>IMHO, if you are getting a s/w degree from a competent school, it is not a problem to have $50K of loan.</p>

<p>PS: I wish they remove S and M from STEM. Some majors in SM do not offer very good employment prospect especially when you only have an UG degree.</p>

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<p>@Furrydog --do you offer an internship to every student who applies? If not, how many applications do you typically get for each open position? What do you pay the ones that you opt not to hire?</p>

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<p>The vast majority of graduates do NOT get jobs at Google, Facebook, eBay, they just don’t. </p>

<p>I agree with calmom. Keep your debt to a reasonable amount. Otherwise it has the potential to strangle you in your young adult, after college life.</p>

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<p>The “$30k/first year salary” rule of thumb came about because the $30k is what the student borrowing only Staffords can get, and the ‘first year salary’ someone made up, like that your engagement ring should be 3 months salary. Sounds reasonable, right?</p>

<p>I will say that I’m not at all comfortable with my theater/art history child borrowing $30k, and have no problem with my engineer child doing it. Ironically, the engineer probably won’t need to borrow that much because of internships or co-op work opportunities, and the other might but we’re trying to avoid it by thinking of work alternatives including being an RA or having to work a fast food job rather than an unpaid acting internship or summer stock.</p>

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<p>Actually, the Stafford loan limit is under $25K for most students – and there is some simply math behind the total loan=first year salary number. It has to do with the loan payments, which do vary depend on interest level – but basically the idea is to figure out how much of a monthly loan payment a person can manage with a particular salary, keeping in mind that most students do not want to spend their post-college years occupying their parents’ basement. </p>

<p>The problem with the STEM rationale (engineers earn more) is that many students wash out of engineering programs, and some students don’t finish college at all --but the debt remains. A high debt level creates its own economic pressures that might force a student to leave college, especially when some or all of the amount borrowed is unsubsidized. </p>

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<p>The Direct. Loan limit is $5500 plus $6500 plus $7500 plus $7500. I believe that is $27,000</p>

<p>Still…I agree with Calmom…don’t assume you will get a high paying job from the get go. </p>

<p>To the poster above…my engineering major never wants to work as an engineer and is working an hourly wage job that has no benefits. It is NOT in the engineering field.</p>

<p>My music major is working as a musician, and is paying his bills. </p>

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<p>I think the “first years salary” came about because salary impacts ability to pay back loans. It was probably meant to discourage high loans for lower salary careers. </p>

<p>OP - Even if you think your son will likely have a higher salary career, in your mind allow for the possibility that he may change plans midstream. The loans will need to be repaid regardless of the outcome. </p>

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<p>If your son is that hardworking and going to make it no matter what, then he doesn’t need to go to a very expensive school. What is your state flagship/</p>

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<p>My personal rule of thumb is not based on anticipated post-grad first year salary – it is based on earning capacity at the time the loan is taken. For example, I think that my d’s summer job after high school paid about $10/hour - that translates into a roughly a $21K annual salary. My son quit college at age 20 and earned about ~$25K while working full time. High schoolers who have some job skills and a history of earning more might be safe to borrow more. </p>

<p>Anything else is speculative, although of course by the time a kid reaches senior year it’s a lot easier to predict outcomes. The problem is that the “how much to borrow” question tends to come up early on when the kid is still in high school and both kid and parents are caught up in warm and fuzzy feelings about what the college experience will be. And maybe things will turn out well. </p>

<p>But the debt doesn’t go away if things don’t work out as expected. </p>

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<p>@calmom - no, we do not offer internships to all kids that apply. On the other hand, many kids turn us down because, frankly, they are given better offers. This year, we took about 20 interns but we are just a middling company. There are literally hundreds (if not thousands) of companies in the valley looking for interns every year. Of course, not all kids are offered an internship. However, IMHO, the chance is fair if you have an OK GPA. (yes, I did turn down bunch of kids with 1+ GPA - that is just way too low) and you present yourself well.
I understand that nothing in life is certain. However, you should try to evaluate your risk/reward objectively. IMHO, some student debt can be justified/managed.</p>

<p>@thumper1 - of course, not everyone works at Google, Facebook - that would not be a good thing (by the way, I am told that Google is not known to pay that well) However, there are really a lot of companies looking for s/w engineers including none s/w companies.</p>

<p>I agree that it would not be good to get washed out of engineering program (or any other program) while you incur significant debts. But believe me, engineering is not pre-med. If you put in some effort, you should do ok.</p>

<p>May be I am Pollyannish. Perhaps, other people who are much more familiar with engineering job market can chime in and tell me I am full of “brown-stuff”.
:smiley: </p>

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<p>Google salary is only 100K but all-in compensation is 150K starting. That’s pretty damn good in my book. Though of 'course, it’s the Bay Area where that’s worth half as much as it is in the rest of the country but still.</p>

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<p>How much someone can reasonably take out in loans varies greatly. How much are thinking of having him borrow? As a freshman, he can only borrow $5500 on his own. Sophomore year he can borrow $6500. Junior and Senior years $7500. Beyond that, unless your family qualifies for financial aid and he gets, say Perkins loans offered, that’s it without you or other credit worthy cosigner involved. If YOU, the parents are willing to borrow for him, go on ahead. I don’t recommend those Co-loans as the terms are not as good, not much flexibility, and the tie both you and the student in financial shackles. With PLUS, if either parent or student dies, loan is forgiven and the terms have been flexible. I 've yet to see much lower interest rates on those co loans either. </p>

<p>You can’t count on your other student going to a full need met school, and it’s no sure thing your son gets into MIT. If he’s a great student, he might get into something like CMU or Georgia Tech, and those schools do not guarantee to meet full need so the relief you see to be counting on in year 3 might not happen. </p>

<p>Kids change their minds a lot, and the STEM majors tend to make changes out of that field. I have a close friend whose talented brilliant daughter changed her mind about a program mid way through, and that quashed a lot of plans and assumptions, including the investement that the parents thought would be easily repaid. NOpe. It’s been a disaster.</p>

<p>When a graduate gets a great job out of college, all well and good. Most of my kids’ peers are barely making it. Even those who got what are considered great jobs have found that those start up expenses really cut into the paycheck, and any school loans are a tough go. My one son needs a reliable car , for instance. This year of car trouble has really set him back. The economy can easily tank, and jobs can be scarce. In such times, and we saw this in 2006, even some grads with degrees that should have made for lucrative job offers, didn’t get much action in that department. It’s wonderful when it happens. COunting on it , counting on a teenager to perform that way in the next 4 years is a pretty danged heavy load to put on a kid. </p>

<p>If you want to bet on this, YOU can take out the loans. Don’t put it on a recent high school graduate, a teenager to make this decision. If you can afford to take out these loans and repay them, and want to spend your future earnings on this, do it. I did with one of mine. I just repaid those danged loans and it was 14 long years with each payment painful. And I 'm only done now because I opted to start repayment immediately rather than waiting until after graduation . I could feel the pain of each loan as my payments increased each term. If PLUS operated that way as a requirement, fewer parents would find themselves in so much debt.</p>

<p>Often, we get kids posting here wanting their parents to cosign or do anything so that they can borrow outrageous amounts. I oftnen ask them if they really want to risk their parents’ financial future that way. In this case, I’m asking you, the parent, fi you really want to risk your kid’s financial future sticking him with loans he may not be able to afford.</p>

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<p>Lots of food for thought from everyone - thank you for all of the comments and please keep them coming. To cptofthehouse I hear what you are saying. We wouldn’t stick him with loans he couldn’t afford. The risk would be on us and an impact on our potential to retire when we would like to if he weren’t able to pay… We have essentially told him that we can afford to pay about 40K per year so he is applying to some schools w merit aid and to our state school. But, junior year and standardized testing went very well so I think he does have a shot at a “top” school (and believe me I know very well that you can get a great education at many, many colleges around the country - but with his interests, personality, competitive nature etc he is very focused on shooting for a “top” school for the opportunities it could provide). </p>

<p>So, I’m trying to figure out if I should offer him the option of applying to some of these schools with the understanding that he would have to take on a higher debt burden. And would this make sense if he seemed pretty clearly heading towards a high paying right out of college job like engineering or finance…. Amounts like 50K, 75K sound like huge amounts of loan debt clearly. But is it entirely manageable to a grad of MIT or Cornell CoE etc?</p>

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<p>Wyanokie - Ah, your thought process is familiar to many of us here :wink: It’s good you are thinking this through now. </p>

<p>My thought is that $75K debt is too much… even if you are certain that DS will stick with a lucrative major and finish his degree. As you think it through, make sure you have a varied list that includes schools where scholarship is obtainable. In the end, we opted to let DS apply to MIT… with the disclaimer that even if he got in we would maybe need to say No due to finance. Ditto for Harvey Mudd if he didn’t get a scholarship. </p>