The average 2016 graduate left with $37,172 in student loan debt. But when it comes to loans, how much student debt is too much?
How much student debt is too much?
While this answer is different for everyone, there are steps you can take to estimate your student loan limit and keep debt down. Before taking out student loans, consider these eight tips.
1. Don’t take out more than your annual starting salary
Most advisors warn students against taking out more in student loans than they expect to make in their first year’s salary after college. If the average student is $37,172 in debt, their starting salary should match or exceed that number.
As long as your salary is greater than your loan debt, you’ll be better able to handle a 10-year repayment plan. With $37,172 in loans at a 5.7% interest rate, for example, you’d pay about $407 per month for 10 years, according to our student loan payment calculator.
But if your salary dips lower than your total debt, you’ll likely have more trouble handling the monthly payments.
2. Start researching majors and careers today
But how can you estimate your starting salary if you have no idea what job you want after graduation? Even if you do know your future career path, there’s no way to predict whether or not you’ll find full-time employment right away.
There is a certain element of risk here and you may have no idea what your career plans are. But before taking out student loans, reflect on your interests. And use sites like the Bureau of Labor Statistics or Glassdoor to learn about starting salaries.
This research will help you clarify your career goals. You might decide to choose a lucrative college major with a high return on investment. Computer engineers, for instance, have an average starting salary of almost $70,000. Liberal arts majors, on the other hand, average a starting salary closer to $40,000.
You don’t have to shun the liberal arts if that’s where your passion lies. But if that’s the case, think twice about taking out more than $40,000 to pay for school.
3. Learn about your repayment plan
Before taking out student loans, learn the details of your repayment plan.
How long will you be paying off loans?
What is your interest rate?
What will your monthly payments look like?
Many students feel they should go to the most highly ranked college they get into, but the cost of tuition is an important consideration. Even if student loan repayment feels far off in the future, you will have to deal with that monthly bill someday.
By understanding the numbers, you can make a clear decision about taking out student loans. If you’ll be stuck with an $800 monthly payment, consider attending a less expensive school.
4. Opt for federal loans over private loans
Federal loans typically have lower interest rates than private student loans. Interest rates for undergraduate federal loans range between 3.4% and 6.8%. But private interest rates can creep much higher.
Plus, the government offers more borrower protections than private banks do. For instance, you may qualify for federal loan forgiveness or income-driven repayment plans if you have federal loans.
At the same time, the government sets a borrower limit for dependents of $31,000. Some students take out private loans to make up the difference. Since banks usually require a good credit score, parents tend to cosign on these loans.
If you’ve hit your federal limit, consider whether taking out more student loans is the right choice. The college experience you’ll get now might not be worth all the additional years of repayment —or the potential burden on your parents.
5. Search for as much free money as you can get
One excellent way to reduce the amount you take out in student loans is to get scholarships and grants. Scholarships are essentially free money; you don’t have to pay them back.
There are tons of scholarships at both the local and national level. Websites like Scholly and College Board Scholarship Search help you locate funding opportunities. And this can reduce your reliance on student loans.
6. Learn about careers that offer loan forgiveness or assistance
Both the federal and state governments offer loan forgiveness and assistance programs. These programs are for those in certain occupations — like doctors, nurses, and teachers.
To qualify, you typically need to work in a high-need or critical shortage area. Research these programs to see if any match your career goals.
7. Find a part-time job during college
Prevent your student loan debt from ballooning out of control by taking a part-time job during college. By making some income, you won’t have to keep taking out loans to cover living expenses.
Some jobs, such as academic tutor and mystery shopper, pay a good deal more than the usual minimum wage options on campus.
8. Don’t spend student loan money on other expenses
Finally, be careful not to spend student loan money on expenses such as monthly bills or going out to eat.
Student loan money comes with strings attached. Due to compounding interest, you’ll end up paying way more in the long run than you realize today.
Do your research before taking out student loans
Student loans can be a huge burden. Many studies show that debt-saddled millennials are waiting longer to get married or buy houses.
Before signing on the dotted line, find answers to any and all of your student loan questions. Make sure you understand exactly what your repayment plan will look like.
If you decide how much student debt is too much before taking out loans, you’ll ease the financial burden on your future self.
Need a student loan?Here are our top student loan lenders of 2019!
|2 Important Disclosures for College Ave.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
(1)All rates shown include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
(2)This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with an 8-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 7% variable Annual Percentage Rate (“APR”): 96 monthly payments of $179.28 while in the repayment period, for a total amount of payments of $17,211.20. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
(3)As certified by your school and less any other financial aid you might receive. Minimum $1,000.
Information advertised valid as of 5/29/2019. Variable interest rates may increase after consummation.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
3 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
4 Important Disclosures for Discover.
5 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
©2019 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
* Offer valid for new Custom Choice Loans for which applications are submitted for a credit decision between 12:00:00am EST on June 1, 2019 and 11:59:59pm EST on August 31, 2019. A 0.50% interest rate reduction will be included in the loan options presented to an applicant during the online application process, upon passing the initial credit review. The interest rate reduction will be applied as of the first disbursement date and will be effective for the life of the loan.
6 Important Disclosures for LendKey.
7 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
8 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|3.99% – 11.98%2||Undergraduate, Graduate, and Parents|
|4.50% – 11.35%*,3||Undergraduate and Graduate|
|4.84% – 11.99%4||Undergraduate and Graduate|
|3.27% – 10.80%5||Undergraduate and Graduate|
|4.46% – 9.43%6||Undergraduate and Graduate|
|3.74% – 9.72%7||Undergraduate, Graduate, and Parents|
|3.99% – 11.64%8||Undergraduate, Graduate, and Parents|