How much student loan debt is too much

Student loan debt and its rapid pace of growth are in the headlines frequently. As these students graduate college with all this debt its leaving them no choice but to delay owning a home and starting a family.

I remember making my college choice selection. My dream school was extremely expensive and I wasn’t sure I’d be able to make it work. Fortunately, I did some of the things I talk about below but definitely didn’t do all of them.

It seems unfair to make an 18-year-old kid make such a life-altering decision. That single decision will have consequences that could last over ten years. That debt will have have an impact as they try different types of budgets or how much to save for a house. I look back on those huge decisions now and think

In this post I try to be the light at the end of the tunnel. I provide several ways to think through this daunting task of student loan debt and try to answer the question “How much student loan debt is too much?”.

Have a plan for your entire education

When I went to my undergrad for engineering I knew several engineers who just had their bachelors and were working full time. In my head that was always what I was going after. I wanted to get my four year degree, get a job and put in the work.

Some professions don’t have that luxury.

Make sure you have a good idea of what type of degree you need to acquire to maximize your earnings potential. You want to avoid planning on four years of school and then end up needing to get a masters. An undergraduate degree typically takes four years and a masters an additional two.

If you are concerned about that amount of student debt you are going to accumulate that last two years could leave you drowning.

Know the average starting salary

Sometimes you just get lucky and I certainly did in this regard. When I went to college I don’t recall looking into starting salaries for my future profession. I wish I would have.

Fortunately, I knew engineers made a good living. My best advice on this front is that its vitally important to have a range of salaries for your future profession before you decide where you’re going to school. In the image below you’ll see the average amount of student loan at graduation over the course of 25 years.

$30,000 in school debt is going to look a lot different to someone who has an engineering degree versus someone that has an art history degree. There is nothing wrong with either degree but its important to understand the pay profile for each.

I would never choose my degree or path in life based on income. However, I think its important to be aware of the fact that if you want to be a teacher its unlikely you’ll be living in the nicest home driving the nicest cars.

Fortunately, happiness doesn’t depend on money. Its about enjoying who you spend your time with and what you are doing.

Another important item to notice is how the average student loan debt continues to grow. I’m sure this trend will continue over time. Work as hard as you can to come in below the average. Considering that most don’t work to avoid student debt (they have the mindset that they’ll pay it off later) it shouldn’t be too difficult.

How much student loan debt is too much

When it comes down to it I can’t emphasize enough how important it is to treat student debt like the plague. I’ve been out of school for over 9 years and am still making student loan payments. Avoid it at all costs!

I’ve seen first-hand people delay buying their first home or having children because of student loans. While it’s a great financial move, it just doesn’t seem right.

Its going to be very important for you to put together a detailed plan on student loan expectations for your entire degree BEFORE you even agree that you’ll attend. This may seem daunting but I really think it’s important.

Avoid the “I’ll figure it out later” mentality at all costs. All you’re doing is kicking a version serious, heavy can down the road.

After putting this detailed plan together, compare that student loan range to your salary range. I recommend comparing the low end of your salary range to the high end of your student debt range.

If the high end of your student debt range is higher than the low end of your salary range, I suggest you take a look at the numbers.

Just like the image above you want that gap to be as large as possible. If their is overlap between those two I really think you should reconsider your plan of attack for school.

How to calculate a rough student loan payment

Calculating a very rough payment is pretty straight forward. The only input you’ll need are an idea of the total amount of debt you’ll have and a best guess on interest rate.

After you have that just head over to this online calculator and you’ll be able to figure it out pretty quickly.

The key to minimizing student loan debt

The student loan system is set up to make it easy to add debt to someone so early on in life. Its really important that every step is taken to minimize the amount of debt that someone has because it can hang around for quite some time.

With 20% of students having north of 20k in student loan debt its important to put a plan together going into school. Any amount of student loan debt can leave young adults feeling like they need to slow down on owning a home or starting a family.

There are several ways to minimize student loan debt. However, the biggest key is where they attend. This decision is a significant one and needs to be carefully selected.

I feel your pain

There is so much to celebrate at this stage of life. You or a loved one have graduated high school and are starting a new, exciting chapter in life. The black cloud hanging over the party is student loan debt.

My best advice is to put together a plan and truly do everything you can do avoid student loan debt. It can hang around for quite a while putting a drag on a twenty something’s finances.