By Cheryl Winokur Munk
September 4, 2021
Borrowing for college is considered a given by many families.
Fifty-five percent of families said they plan to take out student loans this year, according to a recent survey by College Ave Student Loans, a provider of private student loans. Of those families, slightly more than half say they expect to borrow $10,000 to $40,000 in loans, while 23% say they plan to borrow $75,000 or more, according to the study.But how much is too much? There is no one answer, of course. It depends on several things, including: how long the student takes to graduate; how much he or she stands to make after graduation; and what resources a family has. Each family needs to determine the number they can afford to avoid becoming unduly burdened by education loans. “I often hear from families, ‘We got in, we’re going to make it happen,’ ” says Scott Gibney, an educational consultant with Gibney Solutions LLC in Northport, N.Y. “I always tell them you can’t figure out how to pay for a $300,000 education later. It’s better to think through the numbers today. How is this going to work?” So how is it going to work? Here’s how families can determine how much is too much in college loans:
Derek Brainard, national director of financial education at AccessLex Institute, a nonprofit that helps families weigh these decisions, says that using the example of the taxpayer in New York state, allocating 10% of take-home pay to student debt payments would amount to about $330 a month. At 20%, the monthly allocation would be $659, says Mr. Brainard.Depending on the field, your starting salary might not be enough to cover such a high debt load. For instance, the average debt for a person obtaining a master's degree in humanities is $52,200, a figure that includes undergraduate and graduate borrowing, according to data from Educate To Career, a nonprofit that helps families in the college-planning process. By contrast, the average starting salary in this field is $45,643, Meanwhile, the average debt for a four-year graduate with a degree in biology is $44,700, compared with an average starting salary of $33,070, according to Educate To Career. A free tool developed by Educate To Career can help families better understand what may be affordable. Families can run simulations based on factors like their student's intended major, school choice and how much the family plans to contribute from savings. More granular data is also available for a fee. Use the federal government's Student Loan Simulator to estimate the size of monthly payments under different repayment options, including the standard 10-year plan, or an income-driven repayment plan, which is based on your income and household size, The tool can also help students determine how taking on more debt could affect their total repayment obligation.
"Academic major is significantly more important [than choice of institution] in determining starting salary, lifetime earnings, facilitating wealth creation and so forth," he says. Employers are "hiring a skill set, not a label on a diploma." he says.In the same vein, he adds, studying a soft major at an expensive college is a "weak value proposition." The combination of a weak major and a school that is too expensive, forcing the student to borrow too much, can have long-lasting consequences. You can be paying student loans well into your 50s. "It can ruin your life," Mr. Hill says.
On its face, this may sound manageable. But where many students get into trouble is they forget to consider graduate school, which can lead students further down the rabbit hole of debt, Keep in mind that the average student-loan debt for a graduate degree was $71,000 in 2015-16, according to the most recent data available from the National Center for Education Statistics.Graduate school could still be "a long, expensive haul," says Nancy Goodman, founder and executive director of College Money Matters, a nonprofit that helps families make decisions about paying for college, While some companies offer programs that help defer the cost of graduate school, and stipends or other programs may be available, she urges families to start out as inexpensively as they can, borrowing as little as possible.