Student Loans: How Much to Borrow?

Comments 5 Comments

My recent post on student loan bankruptcy continues to evoke comments from numerous borrowers fighting to make ends meet. Sophia writes in that her $250,000 student loan is proving difficult to manage in a stagnant job market, even with her Ph.D.  Another reader, Mike, responds that he has more than $80,000 in debt, while earning $30,000 a year.

Those loan figures are above average, but not uncommon in a time where college costs have practically tripled since the 1980s (inflation-adjusted). According to a new report by Pew Research, students who graduated with a bachelor’s degree in 2008 borrowed roughly $15,000 (adjusted for inflation), which is a far cry from the numbers above, but still 50 percent more money than what graduating students borrowed in 1996.

What lender in its right mind gives a teenager (figuring you’re 18 or 19 when you assume student loans) up to hundreds of thousands of dollars in student loans? And what borrower in his or her right mind accepts?

While we can’t exactly control lenders’ decisions, we can control what we, as borrowers take on. Just like you wouldn’t (or shouldn’t) accept a $500,000 mortgage if you’re only making $50,000 a year (though banks granted those types of mortgages a few years ago), students should not take on more than they can feasibly carry.  The average graduating salary offer for a bachelor’s degree student is $47,673, according to NACE’s Salary Survey.

For aspiring college students weighing their financing options, consider the following ballpark math for a manageable amount of student loan debt. Consider federal loans first, private loans never.

1. Consider your first year salary. Figure you’ll make the average $47,673 the first year you graduate. That’s close to $36,000 after taxes, assuming a 25% tax bracket.

2. Consider your budget. If your student loans were to make up 5% to 10% of your monthly budget, which is reasonable, considering you will have rent, car payments, some credit card debt, food and utilities, among other expenses, then you want a loan that requires a payment of no more than $360 a month – maximum. At the federal lending rate of 6.8% and a repayment term of 10 years, that’s approximately $60,000 in student loans, which still even sounds a bit high to me. Yes, you will boost your earnings potential and can afford to pay more years down the line, but best to stay conservative here, since, again the banks certainly won’t be. And not to be cynical, but who knows if you’ll be able to get a job right away? It may take several months to land a job, as many current college graduates will tell you.

Bottom line: There are many ways to obtain an education in this country. Drowning in debt should not be one of them. Financial institutions won’t likely tell you this. It’s tough to accept the advice, since we all want to go to the best schools and get the best educations and that all comes at a price – far more than $60,000 – but like anything else in this world, if you can’t afford it, figure out other ways to make it happen. In the financial world you often need to step in and be your own financial advocate. After all, no one cares more about your money than you.

Image: Douglas Muth, via

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  • Kathy

    I totally do not agree with your post! How are you supposed to find other ways to pay for higher education if you do not qualify for Government or even some private grants based upon income? I lost my job almost 2 years ago, and in order to compete, decided to return to college. I was forced to take out a student loan because I couldn’t qualify for grants based on government income guidelines. Yes, unemployment may give you a voucher to attend school, but there are a limited amount of vouchers available, and the caveat of these vouchers is that you can only use them for enrollment provided there is space available in the classes you need to complete your major.

  • Sophia

    There is a big misunderstanding about my posting. My loan was not the amount commented. It was 100,000 barely 10,000 a year from undergrad to Ph.D. That the amount is so large now is due to the exorbitant interest rates charged by the FED, Sally Mae, etc.
    I never would have borrowed THAT!!!
    Plus, how are you to figure how much you are going to be making, if, there are no jobs out there for more than ten million americans.

  • Nico

    How much to borrow is a good question to reflect upon … But then, once you are in school and more money is needed, it is hard to avoid going into more and more debt!

  • http://www.morris morris

    i need help me have get a loan and join in a university


    when am i going to win?

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