Home > 2015 > Students

How Much Student Loan Debt Is Too Much?

Advertiser Disclosure Comments 0 Comments

Q. How much is too much for student loans? My daughter wants to study a field that I think will get her $45,000-$50,000 a year as a starting salary, and she’s trying to figure out how much she can afford to borrow. Otherwise she may go to community college instead. — New college mom

A. The answer to your question is somewhat subjective.

And with so many Americans drowning in college debt, it’s an important question to address.

They say that college is an investment in your future, but like any investment, you need to look at the returns to see if you really want to take on the investment, said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton, New Jersey.

Looking at the numbers, your daughter’s future salary is not all “profit,” Lynch said.

She’d have living expenses, specific expenses for work and she’d also have to pay taxes. So the “profit,” Lynch said, would be the amount she’s able to save. Let’s use $2,500 as an example.

“The question is how much would you pay for a company that produced $2,500 in earnings?” Lynch said. “I would reasonably pay $25,000 for a company that generates $2,500 in profit. That would give me a 10% return on my money.”

Lynch said if your income estimate is a reasonable one, he suggests your daughter pursue it in the most conservative way, starting with community college. She could get her core courses in, and hopefully she could work in the profession she wants at the same time.

This does two things, Lynch said.

“First, it lowers your cost substantially for school. Second, by working in the profession, it allows her to see if she really wants to pursue this career, saving lots of money and time,” Lynch said. “I am a huge fan of education and think that we all need to continue to grow our minds each year. You just need to ask if the cost of that knowledge worth the price that you will be paying.”

Ron Garutti, a certified financial planner with Newroards Financial Group in Clinton, New Jersey, said he’s seen a shift in the last few years when talking to parents of soon-to-be college students. He said many are considering this same question of money versus benefit.

“Many parents are also considering the maturity and preparedness of their children,” Garutti said. “A common thought among parents is that they don’t want to pay for their kids to attend a four-year party.”

He said some children are starting at a community college, and then if all goes well, they transfer to a four-year school. If credits properly transfer, this could be a significant savings for the payer, Garutti said.

One consideration is the cost of the schools your child is considering because prices vary so much.

“Always look at the net cost of a school,” Garutti said. “Aid, tax benefits and other considerations could reduce the actual cost of each school. A good guidance counselor can help identify aid or scholarship opportunities.”

Specifically in relation to your daughter, Garutti agrees that she should consider the expenses she will face after college. Will she be paying for rent, living at home, moving far away, paying for a car, commuting, etc.?

“The more her post-graduation expenses will total, the less I would recommend she spend on schooling in the near term,” Garutti said.

She should also consider where in the country she will settle, and whether the area is lower or higher than average for her future job.

“Another consideration is how certain she is about her field of study,” he said. “Is she definitively dedicated to it or might she change majors? If she is uncertain, she should consider a school with many paths for her to choose from.”

More on Student Loans:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team