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 2018!
|1 Important Disclosures for CollegeAve.
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.
2 Important Disclosures for Discover.
3 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB) or Turnstile Capital Management, LLC (TCM), which are not affiliated entities. Certain restrictions and limitations may apply. Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. All loan products may not be available in certain jurisdictions. Other terms and conditions apply. Ascent is a federally registered trademark of TCM and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
* 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.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for PNC.
PNC Bank is one of the nation’s largest education loan providers. For over 40 years, PNC has been committed to helping students and their families make possible the adventure of college.
6 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.
SunTrust Bank, Member FDIC. ©2018 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
7 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
8 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.
9 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|3.69% – 10.94%1||Undergraduate, Graduate, and Parents||Visit CollegeAve|
|3.97% – 12.97%3||Undergraduate and Graduate||Visit Ascent|
|4.34% – 12.99%2||Undergraduate and Graduate||Visit Discover|
|4.12% – 10.98%*,4||Undergraduate and Graduate||Visit SallieMae|
|5.03% – 11.23%5||Undergraduate and Graduate||Visit PNC|
|4.00% – 13.00%6||Undergraduate and Graduate||Visit SunTrust|
|4.72% – 9.81%7||Undergraduate and Graduate||Visit LendKey|
|3.72% – 9.68%8||Undergraduate, Graduate, and Parents||Visit CommonBond|
|4.19% – 12.06%9||Undergraduate, Graduate, and Parents||Visit Citizens|