How Much Student Loans Is Too Much

You’re a college student and you’ve got student loans. But how much is too much?

The answer to that question depends on what you want to do with your life and where you want to go. If you’re still in high school or college, it’s probably too soon to worry about student loan debt—yet!

But if you’re done with school and are now looking for a job, then there’s no time like the present to start thinking about your student loan debt.

Here’s why:

First of all, the average student graduates from college with $37,172 in debt. That number is a lot higher than it used to be—in 2001-2002, the average was only $17,826.

Second of all: we all know that people who have more education tend to make more money over time than people who don’t have as much education (that’s why we go through all that trouble getting an education!). In fact, if someone has a bachelor’s degree they can expect their lifetime earnings will be around $1 million more than someone without one! So it makes sense that people try really hard not to get into so much debt that they can’t pay off their loans when they graduate because

How Much Student Loans Is Too Much

You should also consider other debt and maintain a manageable debt-to-income ratio . The student loan payment should be limited to 8-10 percent of the gross monthly income.

For example, for an average starting salary of $30,000 per year, with expected monthly income of $2,500, the monthly student loan payment using 8 percent should be no more than $200.

Allocating more than 20 percent of discretionary income toward student loans can overburden your student and make it impossible to repay their loans in a timely manner.

If you’re wondering how to avoid a burdensome amount of student loan debt, consider these nine tips:

1. Research average starting salaries for your major
   There’s a general rule that you shouldn’t borrow more in student loans than you can expect to make in your first year out of college. If you expect to make $30,000 in your first year, for example, cap your student loan borrowing at $30,000.

Of course, you can’t guarantee that you’ll land a job right away, and you might not know what you want to do or major in yet. However, it’s worth doing some research before you take on debt to clarify your career goals and make sure your degree would have a good return on investment.

Here’s a sample of average starting salaries by undergraduate major from the National Association of Colleges and Employers (NACE):

Communications: $58,174
Business: $58,869
Humanities: $59,500
Social sciences: $59,919
Computer science: $72,173
You can also use sites such as the Bureau of Labor Statistics (BLS) or Glassdoor to learn about starting salaries. Consider asking your school for this information, too.

With the average graduating student in the Class of 2020 who took out loans owing $28,400, it would be beneficial to have a starting salary that at least exceeds that number. This way, you may be better able to handle a 10-year standard repayment plan. With $29,900 in loans at a 3.73% interest rate, for example, you’d pay about $299 a month, according to our student loan payment calculator.

All that said, it’s impossible to predict whether you’ll quickly find full-time employment after graduating, even if you do know your future career path. There is a certain element of risk here, but it can still be helpful to reflect on your interests and goals when deciding how much money to borrow.

2. Learn about your repayment plan
   Before taking out student loans, learn the details of your repayment plan. Consider questions such as,

How long will you be paying off your loans?
What is your interest rate?
What will your monthly payments look like?
You can use the Loan Simulator tool from Federal Student Aid or one of our student loan calculators to understand what your loan payments will look like on different repayment plans. By understanding all the numbers, you can make a clear decision about taking out student loans. If you’ll be stuck with an $800 monthly payment, for example, consider taking out less by attending a less expensive school or working a part-time job.

3. Consider tuition costs and financial aid, not just ranking
   Some students might feel they should go to highly ranked colleges, but the cost of tuition and availability of financial aid are also important considerations. Rather than automatically choosing the college with the highest ranking, make sure to compare costs among schools.

Along with looking at tuition and fees, check out the schools’ financial aid policies. Some schools are more generous than others, with some even covering a student’s full financial need with gift aid.

When looking at schools, don’t rule out community colleges, either. These institutions can offer a quality education as you earn credit toward a degree. You can lower your expenses, especially if there’s one nearby so that you’re able to cut back on transportation and living costs.

While it might be tempting to attend the school with the best reputation, it might not be worth it if you’ll end up saddled with debt. Even if student loan repayment feels far off in the future, you will have to deal with that monthly bill someday.

4. Opt for federal loans over private loans
   Federal student loans typically have lower interest rates than private student loans. Interest rates for undergraduate federal loans range between 3.73% and 6.28%. But private interest rates can creep much higher.

Plus, the government offers more borrower protections than private banks do. For instance, you may qualify for federal loan forgiveness or income-driven repayment plans.

At the same time, the government has a $31,000 borrower limit for dependents. Some students take out private loans to make up the difference. Since banks usually require a good credit score, parents tend to cosign on these loans.

If you’ve hit your federal limit, consider whether taking out more student loans is the right choice. The college experience you’ll get now might not be worth all the additional years of repayment — or the potential burden on your parents.

5. Fill out your FAFSA early each year
   Filling out the Free Application for Federal Student Aid (FAFSA) will make you eligible for federal financial aid, including grants and student loans. Get a head start on this important application so you’re not scrambling at the last minute.

Missing the deadline could mean you won’t get some much-needed aid. Besides, if you can maximize your need-based aid, you may not need to take out as many student loans (both federal and private).

Most states open their FAFSA applications around the beginning of October each year, but some states are earlier. Connecticut, for example, has a priority deadline in February.

Give yourself plenty of time since you may need to provide additional paperwork or correct any mistakes on your application.

6. Search for as much money as you can get
   One excellent way to reduce the amount you take out in student loans is to get scholarships and grants. Typically, scholarships you don’t have to pay them back.

There are tons of scholarships at both the local and national levels. Websites such as Scholly and College Board help you locate funding opportunities. And this can reduce your reliance on student loans.

7. Learn about careers that offer loan forgiveness or assistance
   Both federal and state governments offer loan forgiveness and assistance programs. These programs are for those in certain occupations, such as doctors, nurses and teachers.

To qualify, you typically need to work in a high-need or critical shortage area. Research these programs to see if any match your career goals.

8. Find a part-time job during college
   Prevent your student loan debt from ballooning out of control by taking a part-time job during college. By making some income, you won’t have to keep taking out loans to cover living expenses.

If you’re concerned a job could impede your studies, there are work-study opportunities at many colleges that could work around your school schedule. These programs help those with financial need, and you could find work that’s related to your field of study.

To find these opportunities, speak with your school’s financial aid office to see what’s available.

For those who don’t qualify for work-study placements, consider an off-campus, part-time job such as academic tutor or babysitter. These jobs can pay a good deal more than the usual minimum wage options on campus.

9. Don’t spend student loan money on other expenses
   Be careful not to spend student loan money on expenses such as monthly bills or going out to eat.

Student loan money comes with strings attached — interest rates. Due to compounding interest, you’ll end up paying way more in the long run.

On that note, create a budget for all your expenses so you’re not spending more than you can afford during college, which could mean you’ll need to borrow more money. Besides, if you get in the habit of budgeting now, you’ll be much more prepared for life post-college, especially when you need to start paying off your student loans.

student loan calculator

Make extra payments to pay off student loans faster. If you can free up more money for payments right now, you can cut down the total interest you pay, too.

Use this student loan payoff calculator to determine your debt-free date, then see how much time and money you could save by making extra student loan payments. You can see an amortization schedule as well.

Average National Student Debt$28,400

Total Monthly Payment$297

If you refinance your loans at a 3.66% rate then your loan payments will be $163 lower a year. See Refinance Rates

LOAN	LOAN AMOUNT	INTEREST RATE	LOAN TERM	MONTHLY PREPAYMENT	MONTHLY PAYMENT
Loan 1			years		$297

College is supposed to be fun, right? Hollywood sure thinks so: in movies like Old School, Legally Blonde and Accepted, it’s one-half wild parties, one-half intellectual and emotional discovery. But that’s Hollywood—the schools themselves paint a different, but equally attractive picture. Open any admissions office pamphlet and you’ll find students lounging cheerfully in grassy campus spaces; friendly, approachable professors chatting with small clusters of adoring undergrads; clean, peaceful dormitories; and constantly perfect weather.

While both of these portrayals contain some truth (there are parties; the weather is nice sometimes), there’s one aspect of college that is often left out, or at least pushed to the sidelines: the price tag. While it’s no secret that getting a degree has grown more expensive in recent years, the numbers are nonetheless surprising. The cost of tuition and fees at public four year institutions increased by 17% over the past five years alone, according to data from The College Board.

Before using the student loan calculator above, come prepared with a few pieces of information about your loan.

Loan amount

Loan amounts vary depending on whether you’re exploring a federal or private student loan. The loan amount you’re offered might also be limited based on your enrollment level (e.g., undergraduate versus graduate or professional student) or degree program.

Federal student loan amounts

Undergraduate students:

• Direct Subsidized Loans: Up to $5,500 annually.
• Direct Unsubsidized Loans: Up to $12,500 annually.

Graduate students:

• Direct Unsubsidized Loans: Up to $20,500 annually.
• Direct PLUS Loans: Up to the school’s reported cost of attendance, minus other financial aid received.

Parents of dependent undergraduate students:

• Parent PLUS loans: Up to the school’s reported cost of attendance, minus other financial aid received.

Private student loan amounts

Loan amounts for private student loans can vary by lender. Each lender sets its own borrowing criteria, annual borrowing limits, interest rates and repayment terms. In general, private student loan lenders offer loan amounts that cover the gap between a school’s cost of attendance and any other financial aid a student receives. Some lenders also impose lifetime borrowing limits, which may be up to $150,000 or more for some degrees. Regardless of whether you borrow federal or private student loans, borrow only the amount you need per school year after exhausting all grant and scholarship options. If you must take out loans to finance educational gaps, consider maximizing federal student loan limits before turning to a private student loan, as federal student loans come with additional benefits like income-driven repayment plans and standardized hardship programs.

Loan term

Your loan term is the amount of time you have to repay the loan in full. For federal student loans under a standard repayment plan, the default loan term is 10 years. However, student loans that are under an alternative payment plan offer terms from 10 to 25 years. Like private student loan amounts, private student loan repayment terms vary by lender. Terms for private student loans can be as short as five years and as long as 20 years. A shorter loan term can help you save more money on interest charges during your repayment period but result in a larger monthly payment. Some lenders offer lower interest rates as an incentive for a short term length. On the flip side, a longer term for your student loans will lower your monthly payment but will accumulate more interest charges over time. Before borrowing student loans, make sure you know all of the term options your lender offers so you can choose the right path for your financial needs.

Interest rate

The interest rate you’re offered depends on the type of lender you’re pursuing and your financial picture. Federal student loans offer the same interest rate to all borrowers, regardless of credit score or income. Private student loans, on the other hand, will often do a credit check and set interest rates according to your creditworthiness. The higher your credit score, the lower your interest rates. Keep in mind that the lowest interest rates advertised on lender websites may not be available to you. To find out what interest rates you’ll receive, take advantage of lenders’ prequalification features, if available. Prequalification allows you to input basic details about yourself and your desired loan in exchange for a snapshot of the rates and terms offered.

For many students, the only way to stay atop this rising tide has been by taking on an increasing amount of student loans. The result has been skyrocketing student loan debt over the past decade.

Not so fun, that – but don’t get discouraged. Sure, some recent graduates have student loan horror-stories to tell: high debt, low job prospects and a load of other expenses to boot; and others have simply stopped bothering to make loan payments at all (the total number of people with defaulted student loans recently climbed to over 7 million). Many graduates, however, find their debt to be manageable, and, in the long run, worthwhile.

The important thing is to know in advance what you’re getting yourself into. By looking at a student loan calculator, you can compare the costs of going to different schools. Variables like your marital status, age and how long you will be attending (likely four years if you are entering as a freshman, two years if you are transferring as a junior, etc.) go into the equation. Then with some financial information like how much you (or your family) will be able to contribute each year and what scholarships or gifts you’ve already secured, the student loan payment calculator can tell you what amount of debt you can expect to take on and what your costs will be after you graduate – both on a monthly basis and over the lifetime of your loans. Of course how much you will pay will also depend on what kind of loans you choose to take out.