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How Much College Debt Is Too Much?

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By Joanne Leone

One of families’ biggest concerns about choosing a college, a major and a future career is the “D word” — debt. While it’s a good idea to minimize college debt, it may be impossible to avoid it altogether.

The Association of Public and Land-Grant Universities (APLU) says that about 42 percent of those who go to public schools have zero educational debt to take care of after earning their degrees. The majority of bachelor’s degree recipients from four-year public colleges and universities have student debt of less than $30,000.

However, debt isn’t necessarily lower if your child attends a public college or university. Many private schools offer more financial aid packages, usually of higher value than public ones. The net cost of attendance (including room, board, books, etc.) and not just the sticker price should be considered.

If you anticipate your child will graduate with debt, here are some things to consider.

Choosing the Right Major

In most cases, a student’s major and career path affect how much debt they can afford. Usually, a student doesn’t make this decision until their sophomore year; however, sooner is better than later for formulating a strategy.

Choosing a major with a good return on investment (ROI) can make paying off borrowed money less harsh on finances. For instance, the average entry-level wage for a chemical engineer is $68,000 vs. a business major at $45,000 vs. a high school teacher at $35,000.

Should your student choose a major only for the future salary? Of course not. But knowing these details gives you a better idea of how much debt is too much.

Debt as a Percentage of Future Earnings

There are two basic formulas for discovering your child’s debt ceiling. The bottom line for each is about the same.

One recommendation is to not take on more debt than 80 percent to 100 percent of the estimated first-year salary. Using that formula, our future high school teacher should consider loans totaling no more than $28,000 to $35,000.

The U.S. Department of Education recommends keeping monthly student loan payments between 8 and 10 percent of estimated monthly salary. For our high school teacher, that would mean a target payment between $233 and $292.

What Is the Repayment Period?

College Reality Check says the average bachelor’s degree earner takes almost 20 years to repay their student loans. Obviously, the higher the interest rate, the longer it may take.

Frightening, yes? But consider this table, also from College Reality Check.

Total Loan Debt                                Repayment Period

$7,500 or lower                                 10 years

$7,500 to $10,000                             12 years

$10,000 to $20,000                           15 years

This argues in favor of keeping debt balances as low as possible, especially if your student is dreaming of  moving to another part of the country or overseas, launching a business, or starting a family right away.

Is It Worth It?

The short answer is yes. Financial experts tell us that college debt is “good debt” because your child has earned something valuable: a bachelor’s degree. According to the College Board’s “Education Pays” report, the median pay for those with a bachelor’s degree was $24,900 higher than the median salary for those with only a high school education.

In addition, the unemployment rate for individuals between the ages of 25 and 34 with a bachelor’s degree is just 2.2 percent. For individuals in the same age group who only have a high school diploma, the unemployment rate jumps to 5.7 percent.

The caveat is that your child has to make it through to graduation. There’s nothing worse than having to repay a college loan when you don’t have a degree to show for it.

Other Considerations

Federal student loan borrowers who work for government agencies or non-profits may qualify for Public Service Loan Forgiveness after 10 years of employment. That could cut your child’s repayment period in half.

If your child is willing to make sacrifices to their lifestyle, perhaps they can manage more debt. But even with the right formulas, salary estimates and all the information, you and your child are the only ones who can decide what level of debt is right for them.

Joanne Leone speaks at My College Planning Team workshops and writes for MCPT’s website. She is a professional speaker, writer, organizer and certified life coach. She earned her bachelor’s degree in communications and creative writing from Chapman University in Orange, California.
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